Parowan became the first incorporated city in Iron County in 1851. A fort that had been constructed on the east side of Center Creek the previous year was an initial in the development of ironworks in the region. Parowan served as the agricultural support base for the local iron industry, whose blast furnace was located in nearby Cedar City. Eventually, the ironworks were decommissioned.
Despite occasional successes, the mission failed to produce a consistent and sustained supply of pig iron. By 1858, most of the area's mining operations had ceased due to disappointing yields. Today, the area's chief industries are recreation and tourism.
As of the census of 2000, there were 2,565 people, 893 households, and 682 families residing in the city. The population density was 439.2 people per square mile (169.6/km²). There were 1,230 housing units at an average density of 210.6/sq mi (81.3/km²). The racial makeup of the city was 96.41% White, 0.39% Native American, 0.12% Asian, 0.16% Pacific Islander, 1.79% from other races, and 1.13% from two or more races. Hispanic or Latino of any race were 3.16% of the population.
There were 893 households out of which 37.2% had children under the age of 18 living with them, 65.6% were married couples living together, 6.9% had a female householder with no husband present, and 23.6% were non-families. 21.3% of all households were made up of individuals and 11.6% had someone living alone who was 65 years of age or older. The average household size was 2.84 and the average family size was 3.33.
In the city the population was spread out with 31.2% under the age of 18, 8.5% from 18 to 24, 21.9% from 25 to 44, 20.3% from 45 to 64, and 18.2% who were 65 years of age or older. The median age was 36 years. For every 100 females there were 98.1 males. For every 100 females age 18 and over, there were 92.0 males.
The median income for a household in the city was $32,426, and the median income for a family was $36,548. Males had a median income of $30,170 versus $17,036 for females. The per capita income for the city was $14,859. About 7.8% of families and 11.0% of the population were below the poverty line, including 15.4% of those under age 18 and 5.2% of those age 65 or over.