In the early 1900's it was apparent that the people of Terang township sought their own Catholic school.  There had been several small private schools set up in the town over the years but no large scale Parish school had been established.  St. Mary's at Garvoc had been operating since 1885 and the Misses Baird commenced their Noorat High School in 1903.  The clergy at that time had considered that the erection of a new Catholic Church was of a higher priority than a school.

The need for a school was highlighted by the Bishop of Ballarat, Right Reverend Dr. Higgins, at the Confirmation Ceremony on May 27th, 1906.  The site of the new school was to be alongside the old church in Lyons Street (now the site of the Convent).  The cost of the building was £1100 ($170,000 in 2020) and the builders contracted were Messrs. Fidders and Morgan of Mortlake.  The architect was Mr. W. T. Jackman of Warrnambool.

On Easter Sunday 1907, several days before the school wwas officially opened, the Catholic Schools Picnic was held at the Terang racecourse.  This was attended by about one thousand parents and children and served as the official beginning of St. Thomas' School, Terang, with classes commencing the next day.  On the 8th April, 1907, St. Thomas' School officially opened with three classrooms and a music room and a good attendance of about 90 pupils. 

St. Thomas' School was conducted from its commencement by the Sisters of Mercy.  Popular as teachers with both the laity and the clergy throughout the country, the Sisters at once commanded a large attendance of Catholic children.  The student population increased gradually and reached 150 students in 1911.  Each year about nine music pupils presented successfully to the examiners, while three or four annually gained the Merit Certificate.  In 1917 a new classroom for Grades 7 and 8 was added to the original rooms. 

During 1949 each classroom was equipped with its own library.  The playground was entirely regraded and extended to include a small basketball court.

In 1950, a property adjoining the school was purchased and the playground extended further.  The whole school, which was weatherboard, was repainted during the early 1950's and a new fence was built.  In 1955 the old Garvoc school building was moved to St. Thomas' and new rooms were planned to increase classroom space and allow further secondary education classes.  In 1958, Grades 9 and 10 were introduced.  This led to the construction of the three classrooms on the north side of the courtyard.  These buildings were opened in 1961 and Grade 7 and 8 classes moved from St. Joseph's Noorat to St. Thomas'.  In 1954, St. Thomas' enrolment was 233 pupils from Prep to Grade 8.  By the time of opening the new buildings in 1961, the enrolment had increased to 379.

The school chapel, next to the Convent in Bolivar Street, was built in 1965 and the school enrolment increased to 430 pupils, which was probably the highest in the school's history.  The 1970's saw the establishment of the St. Thomas' School Board.  The School Board functioned as a decision-making body in regard to the policies by which St. Thomas' operated.  The Board had 13 members consisting of 10 parents, a representative of Parents' and Friends', a teacher representative and the Principal.  In 1975, St. Josephs was closed and the students transferred to St. Thomas.  A new administration block was built and opened in 1982.

The biggest change in the history of the school was the appointment of the first Lay Principal in 1986, although the Sisters of Mercy continued their presence within the school, maintaining their involvement until 2001.

In the next two decades the classrooms were renovated, a new toilet block and roofing in the courtyard was completed in 1994.  The library was refurbished in 2000.  Room 1 was rejuvenated in 2001 and became the Community Room.  Removal of the slope of the courtyard and upgrading the covered area during 2006 was officially opened in 2007.  In 2009, funding from the Building The Education Revolutioin program allowed the courtyard area to be completely enclosed.

The administration area was again renovated in 2012 with the front entrance to the school being landscaped and paving installed to the front door.  The sport shed was replaced in 2018 and the basketball courts surface was upgraded to synthetic TigerTurf in 2019.