Chi-Chi's was founded in 1975 in Richfield, Minnesota, a suburb of Minneapolis, by restaurateur Marno McDermott (his wife's nickname was "Chi Chi") and former Green Bay Packers player Max McGee. MacDermott had previously founded the Zapata fast-food Mexican chain, which later became Zantigo. From 1977 to 1986, the chain was run by former KFC executive Dula Brown. When Dula took leadership, the chain moved its headquarters to his hometown of Louisville. By March 1995, the chain had grown to 210 locations.
Chi-Chi's last owner while the company was still in business in the U.S. and Canada was Prandium Inc., which had filed for bankruptcy several times, including in 1993 as Restaurant Enterprises Group Inc. and again in 2002 as Prandium. On October 8, 2003, Chi-Chi's and Koo Koo Roo, another Prandium subsidiary, filed for Chapter 11 bankruptcy themselves.
In November 2003, a month after filing for Chapter 11 bankruptcy, Chi-Chi's was hit with the largest hepatitis A outbreak in U.S. history, with at least four deaths and 660 other victims of illness in the Pittsburgh area, including high school students who caught the disease from the original victims. The hepatitis was traced back to green onions at the Chi-Chi's at Beaver Valley Mall near Monaca, Pennsylvania, about 30 miles (48 km) northwest of Pittsburgh. Chi-Chi's settled the hepatitis A lawsuits by July 2004. At the time the suits were settled, Chi-Chi's had only 65 restaurants, fewer than half of the number of four years prior.
In 2010, Legendary Brands revived the Chi-Chi's restaurant chain.