Prior to it being called Potlatch Creek, Lewis and Clark named the stream after one of their party, Colter. However, it was never established. Some old maps also call it by its Nez Perce name, Yaaktoin. Maps as early as 1876 give it the name Potlatch Creek, according to Ralph Space in his book, The Clearwater Story: A History of the Clearwater National Forest.

Potlatch is a Chinook word meaning gift or give. According to miner's, including Space's father, the stream got its name from a particular incident. During the gold rush, two miners cam on foot to Pierce up the Clearwater River to what is now Potlatch Creek. It was spring and the water was very high and they could not get across. They negotiated with an Indian to take them across for 50 cents, but part way across they lost control of the boat. The miners ended up on the opposite side of the creek from the Indian. The Indian yelled across 'Potlatch four bits', but under the circumstances the miners did not believe they owed him anything and went away in spite of repeated demands for pay. They told the story to other miners and the stream became known as Potlatch Creek, Space said.

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