Its name dates from 1753, when at the stream died a chaplain known as Fray José Díaz.
Today Fraile Muerto city consists in two divisions one located on the left bank of the stream Fraile Muerto and the other on the right. The city has a population of 3168 inhabitants.
Fraile Muerto is the center of a large agricultural area, livestock and forestry department of Cerro Largo. The forest area includes 15,000 acres that are developed in less fertile land. While in the fertile areas corresponding to the stream Fraile Muerto there are 7,000 hectares of rice planting.
On the other hand also stands yield livestock meat and wool production.
The Cooperative of Dragon specializes in spinning and dyeing yarn.