Their centers of settlement became the unincorporated communities of Lakefield and Ulao, as well as the Village of Grafton, which is partially located in the town.

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

James T. Gifford, an investor who founded Elgin, Illinois, developed the community of Ulao in 1847 as a port on Lake Michigan.

At the time, steamships were common on the Great Lakes and burned massive amounts of wood for fuel.

Much of Grafton was primeval beech-maple forest, which settlers were clearing for agriculture, and Gifford saw an opportunity for Ulao to prosper as a steamship refueling station.

He built a sawmill, a warehouse, and a one-thousand-foot-long pier on the lake where ships docked to buy wood.

The community prospered in the 1850s and 1860s, but by the end of the American Civil War, Ozaukee County's forests had been largely depleted, and Ulao declined, with most of the land being converted to agriculture.

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.

George Froboese, a prominent member of the camp, committed suicide in 1942 while being escorted to New York to answer a Federal subpoena.

[6] Paul Knauer, another member of the camp, was stripped of his U.S. citizenship for having falsely taken the oath of allegiance and was deported back to Germany after the war.

[7] In 1940, the pro-American, anti-Bund Wisconsin Federation of German-American Societies opened Camp Carl Schurz in the Town of Grafton to compete with the Nazi-sympathizers.

Clay bluffs are a geological formation are characteristic of the Lake Michigan shoreline, and are found in few other areas of the world.

The Wisconsin Department of Natural Resources considers the eastern part of the town along the lake to be in the Central Lake Michigan Coastal ecological landscape, while the western part of the town is in the Southeast Glacial Plains ecological landscape.

[14][15] As land development continues to reduce wild areas, wildlife is forced into closer proximity with human communities like Grafton.

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

[25][27] The Ozaukee Interurban Trail, which is for pedestrian and bicycle use, goes through both the town and the Village of Grafton, connecting residents to the neighboring communities of Cedarburg and Port Washington.

The Wisconsin Central Ltd. railroad operates a freight rail line which passes through the town and goes north to Saukville and south to Cedarburg.