The Gunflint Trail, a National Scenic Byway, begins in Grand Marais and ends near the border with Ontario.

The area was a bustling fur trading station in the 1700s, and the French Canadian Voyageurs termed the settled village "Grand Marais" ("Great Marsh"), referring to a marsh that, in early fur-trading times, was 20 acres (8.1 ha) or less in area, nearly at the level of Lake Superior, and at the head of the little bay and harbor that led to the settlement of the village there.

Another small bay on the east, less protected from storms, is separated from the harbor by a slight projecting point and a short beach.

It is an entry point for the Boundary Waters Canoe Area Wilderness, at the beginning of the Gunflint Trail.

The Superior Hiking Trail passes near Grand Marais, and Judge C. R. Magney State Park is nearby.

The land surrounding Grand Marais slopes up to form the Sawtooth Bluff, a dramatic rock face visible from nearly any vantage point in the city.

Adjacent to the bluff is Pincushion Mountain, a large bald monolith with views of Lake Superior and the inland wilderness.

The Gunflint Trail (Cook County Road 12) begins in Grand Marais and heads northwest, away from the lake and into the Boundary Waters region.

Grand Marais has a warm-summer humid continental climate (Köppen Dfb), like the rest of northern Minnesota.

With average highs of just below 70 °F (21 °C) in July and August, Grand Marais has the coolest summer temperatures of any weather station in Minnesota.

[11] Despite being significantly farther north, Grand Marais lies in USDA hardiness zone 4b like Duluth and Minneapolis,[12] with an average yearly minimum temperature of −23 °F (−31 °C).

[13] When winds come from the south, hot temperatures can sometimes hit Grand Marais in spite of the mild summer averages.

The downtown area features two buildings listed on the National Register of Historic Places: the 1896 Lightkeeper's House, which is home to the Cook County History Museum, and the Bally Blacksmith Shop, built in 1911 and home to a local family of smiths for nearly a century.