Grace Lutheran Church was organized in Oskaloosa, Iowa in a house north of downtown during 1945. The location was at the northeast corner of B Avenue West and North A Street. Soon, a better meeting location became available as Presbyterians had just built a new worship building and let the older church building open for rent.

From 1946 until 1963, Grace Lutheran Church held services in the old Presbyterian Church on 3rd Street south off Highway 92. With changes to the downtown area and Grace's congregation growing in numbers, a new location was searched for to build a new church facility.

In 1963, a new church was constructed on a site off then Highway 63 South and 9th Avenue. The new location provided space for the church building and parking for about 35 - 40 vehicles on a gravel lot north of the church with an entrance off of 9th Avenue. This location continues to service today's congregation.

In the mid-1980s, the congregation at Grace decided that a parsonage for the pastor and his family could be build south of the church on property that had just come up for sale. The parsonage was built with the help of a Lutheran Association for Church Extension (LACE) loan.The highway numbering changed in the late 1990s and the current address of the church is Highway 23 and 9th Avenue. The parsonage is located at the corner of Highway 23 and Burlington Road.

In 1998, a new addition to the west side of the church was completed which added handicap access, a space for fellowship time and Bible study, and additional classroom space in the lower level. In 2009, the church completed a major rennovation to the roofing, adding 4" of insulation over the sanctuary and new Decra metal shingles over the entire roof span. LACE funding was extended to provide funding for the project with energy savings helping to pay back the funding.

In May of 2010, the parsonage was re-roofed with church members supply the labor for the project. In early fall 2010, the windows of the original church building were replaced with fixed vinyl-clad windows from Pella Corporation. These windows were paid for with congregational member gifts and labor.

For a period of years from 1995 to 2007, a sister congregation named Our Savior held services in Pella, Iowa at the Pella Memorial Building on the west side of the downtown square. With as many as 7 families attending services during the duration of the congregation, God blessed the church.

Pastor Roger Neumann has served Grace Lutheran Church as pastor since 1980 to the present day.