Port Stephens was sighted in May 1770 by Captain Cook who named it after Philip Stephens, secretary of the Admiralty. He also noted smoke from Aboriginal campfires, presumably belonging to the Worimi tribe who occupied the land from Port Stephens north to Wallis Lake and inland to the Maitland area.
The first Europeans to take up residence in the area were five convicts whose boat sunk off the Port in 1790. They were seen as reincarnated ancestors by the Worimi who aided them and accepted them into the tribe.
The harbour was entered by the convict ship the Salamander in 1791 and charted by deputy surveyor-general Charles Grimes in 1795 who described it as low and sandy. He noted that the Aborigines were taller and more solid of build than those in the Sydney area, that their languages were entirely different and that their canoes and huts were larger. When Lieutenant-Governor William Paterson made out a report of the expedition he foresaw no further interest in the site.
Governor King ordered a survey of the Port by William Paterson in 1801 and it was personally inspected by Governor Macquarie in 1812 who found the port 'good, safe, and capacious' but abandoned his plans as there were too many shoals and the land was considered too barren to support a colony.
Timbergetting commenced in the area in 1816. The exploitation of the area's abundant supply of oysters also began at this time with their incineration for lime at Carrington, Stockton and Fame Cove.
The Australian Agricultural Company (AAC) were granted half a million acres on the northern side of Port Stephens in 1826 and a base of operations was established at present-day Carrington with 80 settlers, 720 sheep and some horse and cattle. Over 200 acres were quickly cleared, vineyards established and, by 1830, an extensive settlement was in place with 600 employees, 11 permanent houses, workshops, military barracks, a smithy, a school, a shearing shed and slaughter house and other temporary buildings. Tahlee House was built for the first manager in 1826 (see entry on Karuah).
The first permanent settler was Captain William Cromarty who was granted 300 acres of land adjacent the Karuah River. In the early days passing ships and whalers used the harbour as a source of wood and water. The approaches to the Port were dangerous and there were plenty of shipwrecks: 24 by the time the first lighthouse was built at Point Stephens in 1862. Another was erected at Nelson Head in 1872. Though they may have stemmed the tide they did not end the wrecks.
After the burning of live oysters for lime was prohibited in 1868, due to stock depletion, the cultivation of oysters for consumption got under way, rapidly expanding in the 1920s, particularly at Oyster Cove. As a result the Port is now the largest single oyster-producing area in Australia. Lobsters were successfully trapped from the second half of the 19th century by Greek and then Italian settlers.
The first survey at Nelson Bay was carried out in 1874 and a post office was opened in 1883. Schools were established at Hannah Bay (now Anna Bay) in 1879 and at both Salt Ash and Nelson Bay in 1883. The Hunter River Steam Navigation Company ran picnic excursions into the area from the late 19th century into the 1940s. In the Second World War Port Stephens was used as a base by the armed forces who trained 20 000 American and 2000 Australian servicemen.
Today Port Stephens' economy is based on tourism, oyster-cultivation, fishing, prawning, dairying, timbergetting and mixed farming.