The site of Port Stanley was part of an important early route from Lake Erie to other inland waterways for a succession of explorers and travellers of the 17th and 18th centuries. It was an important landing point and camping spot. Adrien Jolliet, brother of Louis Jolliet, landed at this location in 1669 during the first exploration of the Great Lakes by Europeans. Other notable visitors included François Dollier de Casson and René de Bréhant de Galinée (1670), Jean-Baptiste Céloron de Blainville (1749) and Sir William Johnson (1761). In commemoration of this role, a site bounded by Bridge, Main and Colbourne Streets was designated a National Historic Site of Canada in 1923, and was marked with a cairn.
Lieutenant-Colonel John Bostwick received the first land grant, and settled in what is now Port Stanley in 1804. Around 1824, it was renamed Port Stanley after Edward Smith-Stanley, 14th Earl of Derby, who had visited nearby Port Talbot. Lord Stanley later became Prime Minister of the United Kingdom and the father of Frederick Stanley, 16th Earl of Derby, Governor General of Canada, ice hockey enthusiast and donor of the first Stanley Cup in 1893.
Port Stanley has a large sheltered harbour that was operated by Transport Canada, but has been divested to the Municipality of Central Elgin. Historically, these facilities supported trade in coal and wood between Southwestern Ontario and the United States. Today, most of these facilities are dormant, but a commercial freshwater fishery operates from the harbour.