SIOUX FALLS, S.D.—When Ruth Sturm told East Coast friends she was moving here, many had to ask where it was.

“I got a lot of, ‘Do people live in teepees?’ ” said the 26-year-old digital strategist, who is among the 20,000 new people to settle in this once-sleepy city of 178,500 in the past five years.

Despite the sometimes harsh weather, she now boasts about her new home, which includes a minigolf course running through her office, four breweries within walking distance and a thriving theater and music scene.

“I legitimately fell in love,” said Ms. Sturm, who grew up in the suburbs of Washington, D.C. “I have never seen a place where people were honestly as excited about the growth and change in their city.”

Many areas of the Midwest have struggled with population loss as manufacturing has declined and farms have needed less labor. But Sioux Falls is on a tear after undergoing an unlikely transformation into a financial and health-care powerhouse in the middle of cornfields.