The Legislature established the West Virginia State Colored Tuberculosis Sanitarium on February 16, 1917, for the care of Black TB patients. Denmar, located on the Greenbrier River in Pocahontas County, was selected as the location. Denmar was the town and mill site for the Maryland Lumber Company, which was then completing its lumbering operations.

Virtually the entire town was converted to use for the sanitarium. The boarding house became the main hospital and administration building. Some houses were converted into living quarters for patients, with separate facilities for men, women, and children. Other houses became living quarters for employees. The mill structure and railroad shop building were used by the hospital farm and dairy. Access to the new hospital was provided by the Chesapeake & Ohio Railway's Greenbrier Division.

Dr. B. A. Crichlow was named superintendent and the sanitarium received its first patients on January 31, 1919. At this time, tuberculosis was often fatal, and many patients died while at Denmar. More than 300 are known to have been buried in a cemetery on the hospital grounds. Also buried at Denmar is the institution's second superintendent, Dr. Samuel J. Bampfield, who died February 22, 1940.

In January 1938, ground was broken for a three-story building to replace the deteriorating lumber company structures. Patients were moved into the new facility in January 1939. A wing to the building was completed in 1952. With advances in the treatment of tuberculosis, by the 1950s the need for tuberculosis hospitals was ending, as was segregation in government-operated institutions. In March 1957, Denmar was converted into a state hospital for all West Virginians with chronic illnesses.

Denmar Hospital was closed in July 1990. The facility reopened in November 1993 as the Denmar Correctional Center, housing medium-security prisoners. A birthing center for prisoners in the federal prison system occupies the former nurses' quarters at Denmar.