In April 1884 an expedition by the German New Guinea Company led by Otto Finsch and Eduard Dallmann arrived and named the landing point "Friedrich Wilhelmshafen"; however, they felt that the area was unsuitable for a settlement.

In the summer of 1891 a station was built and by September 1892 was the seat of the provincial administration; however, the Imperial Government Commissioner remained at Stephansort, some 23 kilometers away due to concerns about malaria.

Although the settlement was expanded from 1893-1894 with warehouses, a sawmill, hospital and other facilities, (including an ox-drawn railway to Stephansort) various ventures, such as the coffee plantations and atap palm processing proved economically ruinous, due to malaria and inclement climate.

Following World War I, the area was turned over to Australia as part of the League of Nations mandated Territory of New Guinea.

In September 1943, Australian forces launched a sustained campaign to retake the Finisterre Range and Madang.

Madang is viewed by many in the country as being safer and more pleasant for expatriates than the larger cities of Lae and Port Moresby.

As a consequence Madang has a larger number of expatriates working and living in the town than its small population would suggest.

Madang receives 3,106.8 millimetres (122.31 in) of rain over 224 precipitation days, with abundant rainfall throughout the year but a wetter and drier season.