In the seventeenth and eighteenth centuries Canisteo was in a remote area, between territories of the Seneca and Delaware Indians, "a sort of No Man's Land".

"[3] A well-known version is that of Steuben County historian Harlo Hakes, published in 1896: "Previous to the advent of the white man this town, and in fact the whole valley of the Canisteo, was the abiding place and favorite hunting and fishing grounds of the American Indians.

We are told that within the limits of this town was once the Indian village of 'Kanestio,' where also lived a number of deserters from the British army and other renegades from the white settlements.

The murder of two Dutch traders by these outlaws brought upon them the vengeance of Sir William Johnson, and the result was the destruction of their settlement.

"[6]: 73 "The Delaware Indian town which had been dignified by some writers with the name of 'Kanestio Castle'...is said to have contained about sixty hewed log houses, with stone chimneys in each, and to have been the home or seat of operations of a noted 'Delaware King,' known as At-weet-sera.

[8]: 6  The earliest description, from a French colonial historian of about 1690, is that Kanestio consisted of "'several score of houses built of timber, each having four stone chimneys, adjoining a natural meadow of several hundred arpents.'

The same French historian, describing an expedition south from what is today Kingston, Ontario, says that Kanestio was a community of European outlaws: ""A more worthless lot of renegades and villains, who had no hope of heaven or fear of hell, we never saw.

In 1762 two Dutch traders, British subjects, were killed by "a brace of outlaws from the Castle,"[8]: 6  described in another source as "the Indians from Kanestio".

[10]: 326  Kanestio was then described as "the largest Delaware [Indian] town", but also according to the same source, it was "a village of lawless stragglers".

[10]: 319  The English governor Sir William Johnson, in response, sent a party of "Indians" and British troops in 1764, under the command of Andrew Montour.

At Kanestio they "burned 60 good houses, a vast amount of corn, agricultural implements and saddles.

Immigration and commerce were via what is today Pennsylvania, where the Canisteo River led to; there were no direct connections with Albany or New York City.

The largest growth came after the Erie Railroad, which did provide a link to New York, arrived in 1851, when many factories opened.

A "fairly large settlement", which disappeared in the twentieth century, grew up near the depot, on the north side of the river and tracks.

The Erie ended that traffic, although an undated picture, which must be post-Erie since it includes a bicycle, shows a horse-drawn "stage" making two trips a day to Hornell.

[14] A map with business notices from 1873 reveals that Canisteo had three physicians, one dentist, four attorneys, one tailor, one stable, a cooper, a foundry, three groceries and a meat market, and small manufacturers of shoes and boots, bee hives, a flour mill, a cheese factory, a rake factory, and some others.

At various times there were factories making buttons, rulers, dresses, signs, Superior registers, baskets, and car springs.

"While the factories over the country are reducing the hours of labor her industries are wide-awake, and have more than enough to keep them running full time.

[20] The same clipping reveals that in 1925 there was a potato club in Canisteo, with a membership of 32 boys and the support of the Erie Railroad and "the state school of agriculture at Alfred".

[21] A business directory of 1893 reports that: Canisteo "has a bank, weekly newspaper, four churches, well-equipped fire department, three hotels, and a first-class academy.

The principal ones are the manufacturing of doors, sash and blinds, boots and shoes, leather, fence wire, incandescent lamps, hubs and spokes, washing machines, etc.

A number of small manufacturing establishments existed along Depot Street in the nineteenth century; there were 10 factories in Canisteo in 1873.

[12] There was also a small sawmill, on Third St.; and Scott's Dairy, a milk processor, located on Depot St. near the rail line.

[12] Between 1894 and 1935, the offices, repair shop, and depot of the New York & Pennsylvania Railroad were located in Canisteo, where, until 1917, when passenger service was discontinued, there was also a staffed station, on the east side of the central park.

[28] The line passed to the east of Canisteo, and passenger service was provided, though ending in the 1940s; the depot stood vacant for decades before being demolished.

[33] The village of Canisteo was severely impacted by the flood of July 1935, until that time the greatest since modern settlement began.

Using federal funding, two levees were constructed, one beginning on the northwest of the village, ending on the southeast, protecting it from the Canisteo River.

[34] The only flooding in the village since this construction was a result of Hurricane Agnes, in 1972, at which time the Canisteo River reached its highest recorded height.

[38] According to the United States Census Bureau, the village has a total area of 1.0 square miles (2.5 km2), all land.

The Canisteo River, flowing southeasterly, passes the northern side of the village, where it is joined by Bennetts Creek.