The Mukjarawaint Aborigines occupied the area prior to white settlement. The first European to pass through the townsite was explorer Thomas Mitchell in 1836. The first station was 'Concongella' in 1841. Gold was discovered on Pleasant Creek by shepherd William McLachlan in May 1853. By 1857 there were an estimated 20 000 miners in the area. They set up a canvas-and-wood settlement known as Pleasant Creek.
The government proclaimed and renamed the settlement 'Stawell' in 1858 after Sir William Foster Stawell, an attorney-general in Victoria's first legislative assembly (1856) who became the chief justice of Victoria in 1857.
The original town centre and administration buildings were established near the Pleasant Creek goldfields. However, as the alluvial gold began to diminish in the 1860s, the population and economic activity began to shift north-east to the Big Hill area where a new settlement, known as Quartz Reefs, developed around the quartz gold found at the foot of the hill. Thus the original townsite became known as Stawell West. The two areas were amalgamated into the borough of Stawell in 1869.
When mining activity at Ballarat diminished in the late 1860s it freed up a flow of capital and experienced hands to the Stawell fields, initiating a boom period during the 1870s which saw new administration buildings erected close by the Big Hill mines. The railway further boosted local economic and social activity upon its arrival in 1876.
Reef mining ended in 1920, by which time around 58 tonnes of gold had been extracted. The settlement survived the slow inevitable decline of the goldfields due to (a) its role as a service centre to the farming community and (b) the emergence of local industries such as a flour mill, brickworks, tannery and woollen mills. Gold mining recommenced at Stawell in 1981.
Of some historical interest is the fact that Marcus Clarke worked as a jackeroo to the north-west of town in the 1860s. The settlement of Glenorchy was the 'Bullocktown' of his 'Bullocktown Sketches' which were published in the Australasian.
Stawell's calendar features the Grampians Jazz Festival in February, the Grampians Gourmet Weekend Festival in May, the Stawell Hot Air Balloon Festival in June and the Agricultural Show in October. The Easter Athletics Carnival is the setting for the Stawell Gift which has been run on Easter Monday since the inaugural race in 1878 which was established for the entertainment of the miners. It is Australia's best-known, richest and oldest professional foot-race, drawing up to 20 000 spectators each year. The Grampians Pro Am Golf Circuit comes to Stawell in March and the Stawell Spring tournament is held in September
A trash'n'treasure is held at the SES Hall in Sloane St on the morning of the first Sunday in the month.