While the oldest archaeological artifacts found in the area date back to the Neolithic, the name "Millstatt" may refer to the Celtic expression "mils" meaning mountain stream or brook.

While the Counts of Gorizia, Ortenburg and Cilli held the office of a Vogt protector the monastic community included up to 150 brothers, who made Millstatt a cultural centre of Upper Carinthia and left a famous codex—the 'Millstatt Manuscript'—in Middle High German language from around 1200.

The Habsburg emperor Frederick III, by this time also Carinthian duke and Vogt of Millstatt, had urged on this decision for the sake of his foundation of the knightly order of St. George to which he handed over the monastery and its estates on 14 May 1469.

The Habsburg archduke Ferdinand II, regent of Inner Austria and later Holy Roman Emperor intended to exterminate Protestantism in his hereditary lands and therefore furnished the Jesuit College at Graz with the benefit of the Millstatt monastery.

With Upper Carinthia it became part of the Napoleonic Illyrian Provinces according to the 1809 Treaty of Schönbrunn, but was restored to the Austrian Empire by resolution of the Vienna Congress in 1815.

On 7 June 1885, Archduke Karl Ludwig of Austria, younger brother of Emperor Franz Joseph, visited the See-Villa and talked about it in highest tones; thus, increasing the popularity of the hotel and of Millstatt in general.

[4] During the Fin de siècle era of the 1880s and 90s numerous inns and hotels opened, while nobles and rich citizens had lavish holiday homes erected on the lakeside.

The town's increasing economic dependence on tourism became obvious in the first recession during World War I, later Millstatt was badly hurt by the Great Depression of the late 1920s.

In addition, the political turmoil during the rise of Austrofascism and the transition to the Federal State of Austria erupted in violent fights, when during the 1934 July Putsch local Nazis attacked the Millstatt police station.

The number of overnight stays in summer reached heady heights, largely affecting the biological diversity and ecology of the lake.