The town is located 293 kilometres (182 mi) by road east of the state capital, Melbourne.

[2] Paynesville was originally called Toonalook, which is an Aboriginal name for "place of many fish"[citation needed].

The post office opened on 8 November 1879 as Toonalook and was renamed Paynesville in 1886 by the Dickson family, who still reside in the area.

[citation needed] Paynesville is also well represented in the sporting arena, with sailing, bowls, tennis and netball clubs in the town, as well as a thriving local football and cricket club, the latter having won back to back Grand Finals in the Bairnsdale Cricket Association for 2007 and 2008.

[4] The Gippsland Lakes Yacht Club (GLYC),[5] based in Paynesville, conducts sail training and sailability programs.