It is situated on the Louttit Bay and Erskine River and is a popular destination on the Great Ocean Road.

[1] Prior to British settlement, Lorne was part of the traditional lands of the Gadubanud or King Parrot people of the Cape Otway coast according to Ian Clark,[2] Lorne is situated on a bay named after Captain Louttit, who sought shelter there in 1841 while supervising the retrieval of cargo from a nearby shipwreck.

Subdivision began in 1869 and in 1871 the town was named after the Marquess of Lorne from Argyleshire in Scotland on the occasion of his marriage to Princess Louise, one of Queen Victoria's daughters.

[4] Popular local activities include traditional beach pursuits such as family bathing and surfing, as well as pier fishing for barracuda, whiting, and trevally.

[5] The town's population swells to around 13,000[citation needed] each New Year's Eve when the Falls Festival takes place.

During the first weekend of January over 20,000 spectators visit Lorne when the town hosts the 1.2 km Pier to Pub swim (described in the Guinness Book of Records as "the largest organised ocean swim in the world" and currently capped at 4,000 competitors[6]), the 8 km Mountain to Surf run, and the Lorne Surf Boat Race.

Terminating in Lorne on the Queen's Birthday was the Great Otway Classic Foot Race (no longer held).