When French explorers arrived in the area in the 17th century, they found a Native American village at the mouth of Sauk Creek—the present location of historic downtown Port Washington.

The commercial harbor closed in 2004 when the power station switched to natural gas for fuel, but the community maintains an active marina for recreational boaters.

In 1679, the French explorers Louis Hennepin and René-Robert Cavelier, Sieur de La Salle described stopping at the first landing north of the Milwaukee River to procure provisions at a Potawatomi village at the mouth of a small river, which may have been Sauk Creek, a stream that empties into the present-day Port Washington's artificial harbor.

[11] The early settlers saw potential in the community's lakeside location and built piers to make their city into a port on Lake Michigan.

The city exported cord wood, wheat and rye flour, bricks, fish, and hides, among other things.

[12] However, Port Washington did not have a natural harbor and its first decades were marred by shipwrecks, including the 1856 Toledo disaster, in which between 30 and 80 people died.

The United States Congress implemented the draft in 1862, and Port Washington's immigrants, particularly those from Prussia and Luxembourg, were unpleasantly reminded of mandatory conscription in the countries they had left behind.

In 1870, Port Washington became a stop on the Lake Shore Railroad, which was later incorporated into the Chicago and North Western Railway.

[19] In response to the numerous shipwrecks in the area, local officials also petitioned the federal government for assistance to dredge and create an artificial harbor.

[23] Additionally, the Bolens tractor company built its main factory in the city in 1894, and in 1896, Delos and Herbert Smith brought their commercial fishing business to Port Washington.

[25] The damages were covered by fire insurance, and the company built an even bigger factory on the waterfront with direct rail access.

[5] In November 1907, Port Washington became a stop on the Milwaukee-Northern interurban passenger line, and a power station on the lakefront provided electricity for the trains.

[5] Despite the decline of decades-old industries, Port Washington experienced significant population growth during the suburbanization that followed World War II.

The construction of Interstate 43 west of Port Washington in the mid-1960s connected the city to neighboring communities and allowed more residents to commute for work.

[11] On August 22, 1964, an F4 tornado touched down in Port Washington, totally destroying twenty houses and causing severe damage to thirty-four others in a newly constructed subdivision.

Port Washington's artificial harbor, dredged in 1871 with subsequently constructed breakwaters, is located at the mouth of Sauk Creek, adjacent to downtown.

The Wisconsin Department of Natural Resources considers the city to be in the Central Lake Michigan Coastal ecological landscape.

[37] As land development continues to reduce wild areas, wildlife is forced into closer proximity with human communities like Grafton.

Port Washington's early economy was heavily based on harvesting and shipping raw materials from natural resources, including lumber, fish, fur, wheat and rye,[12] and beginning in the 1870s, dairy farming played an increasingly important role in the Town of Port Washington's economy with creameries and cheese factories in rural hamlets like Knellsville.

[23] In the early 21st century, public administration plays a significant role in Port Washington's economy, accounting for approximately 20% of jobs.

[63] Port Washington also has a Church of Jesus Christ of Latter-day Saints and a Jehovah's Witnesses Kingdom Hall.

[64] The Port Washington Woman’s Club established the city's first public library in 1899, which got its own building in 1961, when area resident W. J. Niederkorn paid to construct it on Grand Avenue.

It provides books, magazines, computers, printers, study rooms, databases, audiobooks, e-books, and language-learning software.

The rescue task force was formed in 2016 as a collaboration between law enforcement and paramedics to prepare for a mass-casualty active shooter situation.

Additionally, the department has a civilian support staff of three full-time records management employees, one municipal court clerk, one administrative assistant, one parking enforcement officer and one custodian.

Wisconsin Highway 57 runs several miles west of Port Washington with a junction with Interstate 43 in the Village of Saukville.

The Port Washington Generating Station on the southern shore received daily shipments of coal through the harbor until 2004, when it became a natural gas power plant.

When the coal shipments stopped, the commercial port closed, but the community continues to operate a marina for recreational boaters[78] from April 1 through November 1.

Additionally, the Ozaukee Interurban Trail for pedestrian and bicycle use runs north-south through the city and connects Port Washington to the neighboring communities of Grafton in the south and Belgium in the north.

The trail was formerly an interurban passenger rail line that ran from Milwaukee to Sheboygan with a stop in Port Washington, which was the halfway point between the northern and southern terminuses.