[5][6]: 183  Originally an extension of the town of Gravesend to the west, Sheepshead Bay was a secluded fishing and farming community early in its history.

[7]: 2 [8] Three years later the Sheepshead Bay Race Track opened in the neighborhood,[9] bringing even more visitors during the spring and fall.

[7]: 2 [12] The decline of the Sheepshead Bay Race Track, along with the construction of amusement parks at nearby Coney Island and the proximity of Coney Island's attractions to the newly built subway, led to the decline of Sheepshead Bay as a tourist destination.

[10] The closure of the race track resulted in a plethora of newly vacant plots in the community of Sheepshead Bay, and by extension, an influx of residents.

[7]: 2 The bay itself was originally the easterly entrance to Coney Island Creek, which was 3 miles (4.8 km) long and minimally navigable through the 20th century.

[7]: 2  In 1922 the New York City Dock Commission proposed to dredge the bays further, build bulkheads on the shore, and widen Emmons Avenue on the waterfront from 80 to 120 feet (24 to 37 m).

[7]: 2  Residents expressed concerns that the bay might become a commercial shipping port, and local fishermen opposed the city's plan to establish a fish market there.

[10] In 1931, the city condemned several buildings on the bay shore, including the original Lundy's Restaurant, to widen Emmons Avenue.

"[21] In 1936, the city and the owners of the condemned buildings reached a monetary settlement,[22] and by the following year, the channel had been dredged and ten docks had been constructed.

[24] Shore Parkway opened in 1941, and soon afterward, the last remaining farms in Sheepshead Bay were redeveloped into residential buildings.

[10] Sheepshead Bay became populated by Jewish and Soviet immigrants during the late 20th century, similar to neighboring Brighton Beach.

[10] In 1978, in one of the largest disasters in Sheepshead Bay's modern history, six firefighters were killed while fighting the Waldbaum's supermarket fire.

[25] Sheepshead Bay did not undergo the white flight and high crime that afflicted other New York City neighborhoods.

[26] After the closure of Lundy's, Sheepshead Bay transformed from a predominantly Irish and Italian enclave into a more racially diverse neighborhood, and the population became increasingly elderly.

[28] In the last decade of the 20th century, a real estate boom brought the reopening of Lundy's Restaurant,[29] which was made a city landmark in 1992.

By March 1996, property owners reported that real estate prices had doubled and that vacant apartments were being occupied.

[35] Also in the mid-1990s, a small amusement park called Fun Time USA opened on Knapp Street, operating for almost 11 years before closing in 2005.

Low-density, one- and two-family attached and semi-attached houses are common near the western and eastern edges of the neighborhood.

[44] In 2018, an estimated 19% of Sheepshead Bay residents lived in poverty, compared to 21% in all of Brooklyn and 20% in all of New York City.

Based on this calculation, as of 2018[update], Sheepshead Bay is considered to be high-income relative to the rest of the city and not gentrifying.

[51][52] Along the waterfront is a high concentration of immigrants from the former Soviet Union, including Russians and Central Asians, similar to in nearby Brighton Beach.

[41]: 14 The concentration of fine particulate matter, the deadliest type of air pollutant, in Sheepshead Bay is 0.0068 milligrams per cubic metre (6.8×10−9 oz/cu ft), lower than the citywide and boroughwide averages.

[65] Sheepshead Bay's rate of elementary school student absenteeism is about equal to the rest of New York City.

[42]: 24 (PDF p. 55) [41]: 6  Additionally, 82% of high school students in Sheepshead Bay graduate on time, more than the citywide average of 75%.

Originally opened in 1910 as an unstaffed deposit station, it moved several times during the early 20th century before arriving at its current location in 1954.

Emmons Avenue is a waterfront road with piers from which yachts and boats offer day trips for fishing and dancing.

The neighborhood is part of New York's 8th, 9th, and 10th congressional districts, respectively represented by Democrats Yvette Clarke and Hakeem Jeffries as of 2019[update].

[114][115] In addition, Sheepshead Bay is covered by 41st and 45th State Assembly districts, represented respectively by Democrats Helene Weinstein and Steven Cymbrowitz.