The first European into the area was Ensign Dale who led a party from the Swan River into the upper reaches of the Avon Valley in October 1831.
It is said that the name Toodyay is a corruption of the local Aboriginal word 'duigee' which supposedly meant 'place of plenty'. This name related to the richness and fertility of the area and the reliability of the Avon River.
The area was opened up for European settlement in 1836 when a group of early settlers including James Drummond Snr (whose work collecting native flora did much to increase and understanding of Western Australia's extraordinarily rich wildflowers), Captain Francis Whitfield and Alexander Anderson blazed a trail from the Swan River to the present site of Toodyay. Prior to the establishment of this new route Europeans had been entering the Upper Avon Valley via the settlements at York and Northam.
The trail established by Drummond, Whitfield and Anderson was far from satisfactory. They had reached the valley by climbing over the Darling Range at Red Hill and descending into the Avon Valley at Jimperding where the hills were steep and difficult to traverse. The route remained for nearly 20 years until convicts built a better road which reduced the journey from Perth by 12 hours.
In the 1850s the original town was abandoned because of continuous flooding of the Avon River. The local Aborigines knew of the dangers of the original site. It has been claimed that they used to joke about even the kangaroos getting bogged in the mud left after the floods.
A new town was built 2 km further upstream and named Newcastle in 1861. The inevitable confusion with Newcastle in New South Wales resulted in it being renamed Toodyay in 1911.
One rather quirky moment in the town's history occurred in 1876 when the explorer Ernest Giles reached the town after crossing the Great Victoria Desert. In his memoirs he recounted the reception he received upon arriving in Toodyay (Newcastle).
'We were received under a triumphal arch, and the chairman presented us with an address. We were then conducted to a sumptuous banquet. Near the conclusion, the chairman rose to propose our healths, etc; he then gratified us by speaking disparagingly of us and our journey; he said he didn't see what we wanted to come over here for, that they had plenty of explorers of their own etc. This was something like getting a hostile native's spear stuck into one's body.'
Today Toodyay is so impressive that the whole town has been classified by the National Trust.