Prior to the arrival of Europeans the Woiwurung people are thought to have occupied the area. Gold was discovered here (and at Cockatoo located 6 km to the east) in 1858 and the town was planned the following year but the gold soon petered out and the settlement was slow to develop but eventually emerged as a service centre to a nascent agricultural industry. Today potatoes constitute the principal local crop. The settlement was initially known as Main Ridge but was renamed after Emerald Creek which was, in turn, named after a murdered prospector.
Cockatoo was named after Cockatoo Creek. It was first settled in the 1870s but progress was tardy as the land was difficult to clear. Timbergetting was the major source of employment and this industry received a considerable boost when the narrow-gauge railway from Upper Ferntree Gully to Gembrook was completed in 1900. Moreover, the railway brought leisure-seeking Melburnians into the area and a market for subdivision arose.
A famous nursery was started in the late 19th century by Carl Nobelius, allegedly a relative of Alfred Nobel, the founder of the Nobel Prize awards. With the help of the area's fecund red loam Nobelius, by the outset of the 20th century, had turned it into one of the largest nurseries in the southern hemisphere with about 200 000 trees on 180 ha. The nursery employed 80 people. Nobelius House, built in 1888, was one of the Dandenongs' first guesthouses.
In 1919 Katharine Susannah Prichard spent her honeymoon in a cottage her mother had purchased at Emerald. She wrote her novel Black Opal (1921) in another local cottage.