It takes its name from the stream which originally flowed where modern Hōniana Te Puni (formerly Epuni) Street is.

Much of Wellington consists of the remnants of an old peneplain, a flat expanse that rose from the sea about 20 million years ago.

This land was heavily dissected by watercourses from that time and today the tops of the hills around Wellington indicate the general height of that eroded peneplain.

One kilometre to the west of Aro Valley is the Wellington Fault running north-east along the foot of the Tinakori Hills and beyond.

The valley walls are steep in places and house sites are correspondingly uneven, in typical Wellington fashion.

[8] By the 1960s Victoria University was considering Polhill Gully and Holloway Road as potential sites for its own expansion and began buying houses but by the 1970s the plans were being actively challenged by a new generation of Mitchelltown residents who felt the houses and the neighbourhood were worth saving, and by others who envisaged the restoration of Polhill Gully for wildlife habitat and recreational use.

It is also frequented by birds, including—thanks to the proximity of the Zealandia wildlife sanctuary—many tūī and kākā, and the occasional bellbird, grey warbler, North Island robin and saddleback.

The Aro Valley today is a largely untouched remnant of old Wellington, with the majority of its dwellings dating from the first two decades of the twentieth century, and a significant number from the nineteenth.

It was called Waimapihi – in Maori, "the stream or bathing place" of Mapihi, a local chieftainess of Muaūpoko and Ngāti Mamoe descent.

[11] These small communities adapted as best they could to the influx of British settlers that began in 1840, but they took a blow in 1855 when an earthquake raised the low-lying land draining the marshes and cutting off their main source of both food and flax for trading.

It was first developed by settler Wellingtonians as a working-class residential suburb in around 1860,[3] the Aro Valley featured small, narrow sections with closely built wooden or corrugated-iron houses.

European settlement grew as Maori left the area, including Te Āti Awa who returned to Taranaki in the 1850–60s.

He purchased land here in 1885 and some of the houses built were occupied by his son and daughter in law Maxwell and Lila Adams.

[3] In the 1960s, The Evening Post described Holloway Road (a street originally known as Mitchelltown on the western edge of Aro Valley) as "sagging stairways with most of the tread rotted away", leading to "sagging, open doors and damp, musty rooms where glass from broken windows crunches underfoot".

The site became the current Park and Community centre in 1983 after residents fought the City Council that had "promise[d] to create community open space in the old asphalt schoolyard known as Matauranga [school]" [15][14] Gentrification has been ongoing in Aro Valley from the 1970s, boosted by urban-renewal planning (the Comprehensive Urban Renewal Area or CURA) after the rejection of a proposal to turn the valley into a main arterial road route: it became a desirable suburb, seen as close to the centre of Wellington and boasting notable community spirit.

[3] In 1974, the Aro Street public toilets were the scene of a Russian spy drama,[12] when economist, historian and writer Bill Sutch was caught and charged with attempting to pass classified information to the Soviet Union.

)[16] Aro Valley contains the largest collection of unaltered working-class homes in Wellington, some built by local tradesmen for employees, many put up by professional builders and developers as speculative investments.

The area has a strong community council campaigning on a variety of issues such as eliminating plastic bag use in local shops.