It was the first town on Bellingham Bay and was founded in May 1858 by coal mine manager Edmund C. Fitzhugh, who named the settlement for his father-in-law, S'Klallam chief Sehome.

It includes the Sehome Hill Arboretum and is adjacent to the Western Washington University campus, which lies to the southwest of the neighborhood.

The area around Bellingham Bay is the ancestral home of several Coast Salish peoples, including the Lummi, Nooksack, Nuwhaha, and Samish.

The first non-native settlers in the area were Henry Roeder and Russell Peabody, who built a lumber mill on Whatcom Creek and staked land claims around the stream in 1852.

[2][3] Roeder's claim was south of the creek in modern-day Sehome, where two of his employees discovered coal in the roots of a fallen tree while logging.

Sehome was cleared of its forests and permanent buildings were constructed in the 1880s following the activation of an electrical power plant by the Bellingham Bay Improvement Company (successor to the coal mine).

[2] The east side of the neighborhood was developed in the 1930s following the completion of Maple Valley Road (now Samish Way), which was later designated as part of U.S. Route 99—the main north–south highway in Western Washington.

[8] The city's first suburban shopping center, named Bellingham Mall, was opened in 1969 next to the freeway's interchange with Samish Way in southeastern Sehome.

[16] Sehome is represented by a member of the Whatcom County Council elected from District 1, which includes Downtown Bellingham, Fairhaven, and the city's southern neighborhoods.

[13] It was established in the early 20th century and opened in 1974 following an agreement between the Bellingham city government and Western Washington University to delegate maintenance and development to a volunteer organization.

[24] St. Luke's moved into a larger building in 1927 and expanded their campus through several renovation and improvement programs during the 20th century;[25] it also became the sole designated trauma center for Whatcom County.

[7] The Whatcom Transportation Authority runs several bus routes through Sehome that connect to Downtown Bellingham and the Western Washington University campus.