Montagu Bay and its neighbour Rosny were one of the first areas, along with nearby Bellerive to be settled on the eastern shore of Hobart's Derwent River, starting from the 1820s.

[3] In February 1914 the sale of allotments in "the Smelting Works Bay sub-division of the Rosny Estates" was announced, along with the arrangements for its conversion into a suburb of Hobart".

The name of a nearby street, Loinah Road, is derived from the local Aboriginal dialect word for "drinking place".

The area really started to grow with the opening of the Hobart Bridge in 1943, which met the eastern shore in Montagu Bay.

Montagu Bay featured in the world's spotlight in early 1975, when the bulk carrier Lake Illawarra crashed into the Tasman Bridge, bringing down a section of the roadway.

Since very early in its history, the Royal Hobart Regatta's famous trans-Derwent swim, a river crossing of approximately 1.5 km in incredibly strong currents, has begun from Montagu Bay.

The Tasmanian SES has an emergency response headquarters in Montagu Bay, due to the closeness of the Tasman Bridge, and its previous disaster.

A previous Catholic Church, which also temporarily served as Montagu Bay Primary School, was abandoned and demolished, replaced with housing units.