The City Waterway was created in 1902 through a dredging operation proposed by the Northern Pacific Railway and led by the U.S. Army Corps of Engineers.

An existing inlet was widened to 500 feet (150 m) for that era's wheat ships and extended south, while a fork of the Puyallup River (now the Wheeler–Osgood Waterway) was severed.

In 1983, the United States Environmental Protection Agency (EPA) listed the Thea Foss and Wheeler-Osgood waterways as part of the larger 12-acre (49,000 m2) Commencement Bay Superfund site.

The final cap from the Superfund cleanup action on the Thea Foss Waterway occurred back in February 2006.

Local leaders see the Thea Foss Waterway as an economic opportunity, and seek to restore it to the commercial hub that it once was.