The German and Irish immigrants who settled in Grafton in the 1840s utilized the Milwaukee River as a source of hydropower for gristmills and woolen mills.

Manufacturing grew and prospered in the village in the 20th century, including the Paramount Records studio and plant, which was in Grafton from 1929 to 1935.

Even though the last woolen mill closed in 1980, the village experienced rapid population growth and the development of new commercial properties and housing subdivisions.

[10] Timothy Wooden, who arrived in 1839 from the eastern United States, is considered Grafton's first permanent white resident.

[13] The village's early settlers utilized the Milwaukee River as a source of power for milling.

[7] In the early 20th century, the Wisconsin Chair Company of Port Washington operated a furniture factory in the village, which manufactured phonographs among other things.

[14] Music was originally recorded in Chicago,[15] until the Paramount headquarters and studio moved to the Grafton factory in 1929.

Artists including Charley Patton, Son House, Willie Brown, and Louise Johnson journeyed from the American South to record in Grafton.

[8] In the late 1930s, a group of pro-Nazi German-Americans affiliated with the German American Bund purchased land on the Milwaukee River in the Town of Grafton.

As the population grew, the village annexed more farm land from the town of Grafton for residential subdivisions and commercial developments.

Local industrialists Benjamin and Theodore Grob gave $250,000 to the campaign on that condition that the facility be named the USS Liberty Memorial Public Library in honor of thirty-four U.S. citizens killed by Israel during the Six-Day War.

However, the Grob brothers claimed that their intentions were patriotic and they wanted to honor victims who had received little official recognition.

[21] In spite of the controversy and protests in the community, village president James Grant dismissed the allegations and proceeded to dedicate the library in June 1989, marking the twenty-second anniversary of the USS Liberty incident.

The soil in area is a mixture of well-draining material, loess, and loam, which all overlie a layer of glacial till.

The village contains 40-foot high Silurian dolomite outcrops in Lime Kiln Park, which were used for quarrying in the 19th century and have since been used for geological studies.

[26] The Bratt Woods, a nature preserve maintained by the Ozaukee Washington Land Trust on the eastern bank of the Milwaukee River, has old growth endemic trees and retains the character of the pre-settlement beech-maple forests.

[27] As land development continues to reduce wild areas, wildlife is forced into closer proximity with human communities like Grafton.

Large mammals, including white-tailed deer, coyotes, and red foxes can be seen within the village limits.

[28] The Bratt Woods nature preserve is a habitat for the American gromwell, a State-designated special concern plant species.

[26] The region struggles with many invasive species, including the emerald ash borer, common carp, reed canary grass, the common reed, purple loosestrife, garlic mustard, Eurasian buckthorns, and honeysuckles.

As is the case in many of the cities and villages in Ozaukee County, Grafton's early economy was primarily agricultural and the first major businesses were hydropowered mills on the Milwaukee River.

Many of the village's largest retailers are located in the eastern Grafton commercial district near the intersection of Interstate 43 and Wisconsin Highway 60.

[9][13] Aurora Medical Center Grafton, which opened in 2010, is the largest employer in the village and is also located in the eastern commercial district.

Many residents commute for work, reflecting the larger trend of Ozaukee County as a majority-commuter community.

[36] The library maintains a display dedicated to the USS Liberty incident, which includes documents as well as a piece of the ship.

The board meets on the first and third Monday of each month at 6 p.m.[47] The village's day-to-day operations are managed by a full-time city administrator.

[38] Grafton is in the Milwaukee Area Technical College District, whose nearest campus is located in Mequon.

[53] The hospital opened in late 2010 and was part of Aurora's acquisition of the Advanced Healthcare physicians group.

[57][59] The Village of Grafton has sidewalks in most areas, as well as the Ozaukee Interurban Trail, which is for pedestrian and bicycle use, and connects the village to the neighboring communities of Cedarburg and Port Washington, and continues north to Sheboygan County and south to Milwaukee County.

The Wisconsin Central Ltd. (Canadian National) railroad operates a freight rail line which passes through the village and the Union Pacific Railroad (formerly the Chicago & Northwestern Railway) has a line which borders the eastern municipal limits in the Town of Grafton.