In fact a profitable wine industry developed at Lilydale in the 19th century on the back of the rich red volcanic soils of the area. It got under way with the planting of the Yarra Valley's first vines in 1838 at Yering station to the north (see entry on Yarra Glen). The pioneers in this respect were William Ryrie, Paul de Castella and Baron de Pury.
In 1856 a small number of locals petitioned the government to allow the formation of a local council. In fact Lilydale was constituted as a district and the Upper Yarra Roads Board was constituted that year (it did not hold its first meeting until 1862), bringing some form of local administration although Lilydale shire was not formed until 1872.
The name Lilydale was taken from Lilly, the daughter of Paul de Castella, although locals changed the spelling to accord with the spelling of the flower which presumably seemed more poetic. By the start of the 1880s wine-growing was thriving, as was the lime industry. Locals lobbied successfully for the extension of the Melbourne railway which arrived at Lilydale in 1882. However, the disease known as phylloxera hit Australian vines late in the century and closed all the vineyards. It was not until quite recently that the industry began to thrive once again. Today, boutique wines are a specialty of the area where the vineyards trend to be quite small, owing to the price of land. There are also a number of orchards, along with berry, herb and lavender farms. The population, in the 1996 census, was 10 694.
David Mitchell, the father of famous operatic diva Dame Nellie Melba, was one of the largest landholders in the area. He owned a dairy, a bacon factory and once built a 16-km tramway to convey firewood to his lime kilns. Dame Nellie (1861-1931) maintained her connection with the area during her adulthood. While in Australia, and particularly after her retirement, she passed time in the hills and had a retreat at Coldstream (5 km north of Lilydale). When she died large crowds lined the streets of the funeral procession which conveyed her from Melbourne to Lilydale where it was met by a guard of honour who conveyed the hearse to a gun carriage and from there to the Lilydale cemetery where she was laid to rest in a family plot.
The Lilydale Agricultural and Horticultural Show is one of the state's largest such shows outside of Melbourne. It is held in November. The Lilydale Antique Fair and Art Exhibition is held at Jean Eales Pavilion at 27-29 Market St at the outset of October. At Wandin, 10 km south-east of Lilydale on the Warburton Highway, the Victorian Cherry Festival falls in December and the Wandin Field Days are held at the Wandin East Reserve in October. The Coldstream Country and Western Festival is held in February.