The fretted dulcimer is a part of a large group of folk zithers found in quite a few places in northern Europe. There was the scheitholt in Germany, langeliek in Norway, the epinette de Vosges in France, the hommel in Flanders: but none in Britain. All of them are descendants in turn from the cittern, an instrument with simple tunings that could be used to accompany singing in the 16th-18th c. The German word for cittern, zither, would later become the common name for the general family of instruments of the type, including the scheitholt. The name "dulcimer" was given to the instrument likely because 1) Biblical associations -it's in the King James 2) the ( hammered) dulcimer was too scarce to confuse the issue and 3) "Scheitholt" is not a pleasant sounding word in English. The instrument got a wide distribution, though it later got more associations with mountainous areas.

The earliest American instruments, of the 18th c., resemble the German sheitholt, having straight sides and some drone strings, and given the large German migration at the time, it makes sense to put the two together. Sometime in the 19th c. curved sides were added- mostly just one curved side, but eventually two. The earlier instruments also typically had just a series of staples for frets, so that only one string could be fretted, the rest being drones. That remained the case even when J.E.Thomas of Kentucky made his iconic hour-glass shaped instruments, 1871 - 1933. Jean Ritchie played one, when she moved to New York in the late 1940's, and as he made around 1,500 of them they became the most common design.

The earlier instruments had feet and so were often played on tabletops ( the Hungarian variety doesn't make much sound unless it's put on a table), but the American instruments sometimes did not have feet and so were likely meant to be sometimes moved to the lap. Once the instrument had been passed into the hands of guitarists in the 1960's, more and more often the frets were extended by instrument builders across the entire fretboard and more complex chords became possible. This became the more dominant playing style, popularized by people like Joni Mitchell, and fretted dulcimers began to be seen out of the lap, played vertically while standing like guitars, banjos, mandolins, etc. The earlier "noter-style" with one melody string and drones is still found, but less common. Interestingly, it is quite similar to the way the Flemish play hommel.

L. Allen Smith: A Catalog of Pre-Revival Appalachian Dulcimers