The original Fort Defiance Indian Hospital was built in 1912 and it was controlled by the Bureau of Indian Affairs until 1955 when Congress transferred it to the Indian Health Service (IHS) within the U.S. Public Health Service. This facility was located near the original military post in Fort Defiance, AZ, Navajo Nation.

In 1965 the Fort Defiance IHS became an accredited hospital. In the early 1980s, a grassroot effort began planning to request for a new IHS facility. The group known as the Fort Defiance Hospital Steering Committee was composed of community members and elected community leaders, along with the Navajo Nation Division of Health and the Navajo Area Indian Health Service. The efforts of the committee led to the allocation of funds to construct a new hospital. In August 2002, the new 56 bed; 240,000 square foot hospital opened its doors.

Throughout that time the hospital continued to grow with the acquisition of the Nahata'Dziil Health Center in Sanders, Arizona in 1999. Hospital leaders also initiated efforts to become one of several hospital organizations on the Navajo Nation to be governed by Public Law 93-638, Indian Self-Determination and Education Assistance Act. On July 31, 1995 the Navajo Nation Business Regulatory Department of the Division of Economic Development approved and certified the Bylaws of FDIHB and on August 3, 2009, FDIHB cleared a major hurdle in the self-determination process by garnering the approval of the Intergovernmental Relations Committee of the Navajo Nation Council in support of FDIHB's request to become a '638 facility.

On March 28, 2010, the hospital received approval and officially became the fourth Public Law 93-638, self-determined hospital on the Navajo Nation and is no longer under the control of IHS. The '638 status gives the community control of the managment and operation of the facility.

The Fort Defiance Indian Hospital Board of Directors voted unanimously on April 15, 2011, to name the hospital Tsehootsooi Medical Center.