The name Damariscotta derives from a native place-name meaning place of abundance of small fish (alewives).

The area was once inhabited by the Wawenock (or Walinakiak, meaning "People of the Bays") Abenaki Indians, who left behind 2,500-year-old oyster shell middens along the banks of the Damariscotta River.

The land became part of the Pemaquid Patent, granted by the Plymouth Council in 1631 to Robert Aldsworth and Gyles Elbridge, merchants from Bristol, England.

The Province of Massachusetts Bay constructed Fort William Henry at Pemaquid in 1692, but it was destroyed in 1696.

[4] Fort Frederick, in 1729, successfully resisted the region's final two attacks, and was pulled down at the time of the Revolution so that the British could not occupy it.

The main village is located at the lower falls and head of navigation on the Damariscotta River.

Along the river were established several brickyards, which supplied much of the brick used to build Boston's Back Bay neighborhood.

Shipbuilding in particular brought Damariscotta wealth in the 1800s, when clipper ships were launched at the town's shipyards.

[6] During that time, many fine examples of Federal, Greek Revival and Italianate style architecture were erected, giving the old seaport a considerable charm which each summer attracts throngs of tourists.

Damariscotta is home of the Skidompha Public Library, whose name is an acronym formed from the first letter of several founders' surnames.

Hunt Hill, at an elevation of 350 feet (108 m) above sea level, is the town's highest point.