There was once a lake in the middle of the inner city square. The lake, called the Lóúsztató (Horse bath), was drained around 1840, and Sopron's second stone theatre, today's Petőfi Theatre, was built on the northern part of the square. Its transformation into a square began at the time of the construction of Széchenyi Square.
From the end of the 18th century, Sopron was a centre for theatre and music, after the Old Casino was built on the corner of today's Petőfi Square and Liszt Ferenc Street in 1789. Behind it, Hungary's first stone theatre operated from 1769. Many famous composers and historical figures are associated with the square's present and former buildings, including Ferenc Liszt, Károly Goldmark, Franz von Suppé, Ferenc Lehár, Joseph Haydn and Károly Habsburg IV, the last Hungarian king.
The square is named after Sándor Petőfi, who stood guard at the Újhelyi House during his military service in Sopron. The house fringes the square from the south, in front of the former post office building. His statue originally stood at the southern end of the square but was moved to its present location when the underground car park was built in the Square.