New Castle was originally settled by the Dutch West India Company in 1651 under the leadership of Peter Stuyvesant on the site of a former indigenous village, "Tomakonck" ("Place of the Beaver"), to assert their claim to the area based on a prior agreement with the original inhabitants of the area.

The Dutch conquered the entire colony of New Sweden the following year and rechristened the fort as Nieuw-Amstel, named after the Amstel.

As the settlement grew, Dutch authorities laid out a grid of streets and established a common green in the town's center, which continues to this day.

The Dutch regained the town in 1673 during the Third Anglo-Dutch War but it was returned to Great Britain the next year under the Treaty of Westminster.

This transfer to Penn was contested by Lord Baltimore and the boundary dispute was not resolved until the 1763-1767 survey conducted by Mason and Dixon, now famed in history as the Mason–Dixon line.

After being transferred to Penn, Delaware's Swedish, Dutch, and English residents became accustomed to the relaxed culture of the Restoration monarchy and grew uncomfortable with the more conservative Quaker influence, so Delaware petitioned for a separate legislature, which was finally granted in 1702.

During the Revolution, when New Castle was besieged by William Howe, the government elected to move its functions south to Dover in May, 1777.

The line traversed the Delmarva Peninsula, running to the Elk River, Maryland, from where passengers changed to packet boats for further travel to Baltimore and points south.

The decline in New Castle's economy had the long-range fortunate effect of preventing most residents from making any significant structural changes to their homes.

Since 1927, New Castle has offered tours of historical homes, churches, and gardens, which are typically held annually on the third Saturday of May.

Householders dress in colonial costumes and an admittance fee, used toward the maintenance of the town's many historic buildings, is charged.

[6] Although no fatalities or injuries occurred, it was the only tornado of this magnitude ever recorded in Delaware during the Fujita scale era.

[citation needed] The cupola of the court house is the center of the "Twelve-Mile Circle" that defines much of the border between Delaware and Pennsylvania.

[14] The historic district then covered 135 acres (55 ha) of area and includes Amstel House and Old Courthouse which are separately listed on the NRHP.

Delaware Route 141 heads north from New Castle on Basin Road and provides a bypass to the west of Wilmington.

Delaware Route 273 heads west from New Castle on Frenchtown Road and provides access to Christiana and Newark.

[22] Natural gas service in New Castle is provided by Delmarva Power, a subsidiary of Exelon.

[23] The city's Public Works department provides trash and recycling collection to New Castle.