In 1772, a decree was issued prohibiting the burial of the deceased within the city limits, near parish churches. As a result, a plot was allocated for the city cemetery on Krasnaya Gora behind the Pokrovskaya Church. On July 1, 1772, a procession from the Assumption Cathedral went to the new cemetery, and a cross was erected at the site of the future cemetery church. On May 22, 1774, another procession took place from the Assumption Cathedral to the cemetery, where, after a prayer service, a wooden church was laid, transported from the Sukhonskaya Yerogodskaya volost from the village of the Nativity of Christ.

The church was consecrated on October 15, 1774, in the name of Saint Stephen of Velikoperm. On August 4, 1799, the Bishop of Vologda and Velikoustyug, Arseniy, issued a decree for the construction of a stone church of Stephen of Perm. On June 30, 1800, the foundation of the stone church in the name of the Mother of God of All Who Sorrow was laid, with chapels in the name of Saint Stephen of Perm and the Venerable Theodosius of Totma, the miracle worker. The construction was financed by parishioners under the guidance of merchants Yamshchikovs. The bell tower of the Stephen cemetery church was built simultaneously with the temple and had nine bells of different sizes. The largest of them, cast in 1807, weighed 107 poods and 30 pounds and was decorated with images of the Crucifixion of the Lord, the Mother of God, and Nicholas the Miracle Worker. The time of manufacture and weight of the second-largest bell are unknown. The third bell, weighing 12 poods, was cast in Ustyug in 1786. The remaining bells were small and unremarkable.

In the 1960s, a secret resolution of the Central Committee of the Communist Party of the Soviet Union, signed by Nikita Sergeyevich Khrushchev, was issued to liquidate churches in the USSR. Local authorities were to carry out this order. In Veliky Ustyug, it was decided that inspectors did not visit the cemetery, and by the resolution of the executive committee on January 8 and May 6, 1964, the Prokopyevsky Cathedral was closed, leaving only the Stephen-Perm cemetery church for the believers. As a result, repairs were to be carried out in the church: to install an iconostasis, steam heating, lay floors, clean and paint the walls, decorate the temples, arrange the choir, vestibule, and porch, whitewash the outer walls, and paint the crosses on the domes. The chapel in the name of Theodosius of Totma was also abolished, and a shrine of Righteous Prokopy from the Prokopyevsky Cathedral was installed in its place.

In 1965 and 1966, the roof and domes of the church were painted, the iconostasis in the Stephen chapel was gilded, icons were restored, and niches were painted. In 1970, the roofs were re-covered, the iconostasis in the chapel was rebuilt, the chapel was repaired, and the dome was painted. Gradually, the Stephen-Perm church regained a worthy appearance for worship. Until 1991, it was the only functioning parish church in Veliky Ustyug.