The area that became Port Washington was originally inhabited by the Menominee, Potawatomi, and Sauk Native Americans.

The 1830s saw the forced removal of Wisconsin's Native American population, followed by land speculation by merchants and investors.

The Town of Port Washington was formed in January 1846 and until 1847 included the surrounding areas of what is currently Fredonia, Saukville, and Belgium.

[8] The town population reached 2,500 in 1853 and continued to increase, with an influx of immigrants from Germany and Luxembourg between 1853 and 1865.

[9] In the 1860s, William Knell developed the Knellsville community in the northern part of the town as a stagecoach stop on the Green Bay Road.

In the 1870s, dairy farming became increasingly popular among Port Washington's farmers,[10] and the Pauly Cheese Factory opened in Knellsville in 1878.

Knellsville grew to serve the town's farmers with a feed mill, a cannery, and a foundry.

The coastline is characterized by clay bluffs ranging from 80 to 130 feet (24 to 40 meters) in height with deep ravines where streams flow into the lake.

Clay bluffs are a geological formation characteristic of the Lake Michigan shoreline and are found in few other areas of the world.

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

[14] Early surveyors also noted swamps in the area containing birch, ash, elm, oak, and sugar bush.

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

[17] The region struggles with many invasive species, including the emerald ash borer, common carp, reed canary grass, the common reed, purple loosestrife, garlic mustard, Eurasian buckthorns, and honeysuckles.

Port Washington is organized as a town governed by an elected board, comprising a chairman and two supervisors.

The board meets on the first Monday of each month at 7:30 p.m. in the town hall which is located at 3715 Highland Drive in the unincorporated Knellsville community.

A small stretch of Wisconsin Highway 33 passes through the southwestern part of the town between the City of Port Washington and the Village of Saukville.

The closest stop is the route's northern terminus at the Saukville Walmart parking lot, near Interstate 43 Exit 96.

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

The town does not have passenger rail service, but the Union Pacific Railroad operates freight trains in the community.