The area was discovered and first settled by Māori. Kāi Tahu say that the lake was dug by the Waitaha ancestor, Rākaihautū, with his kō (digging stick) named Tūwhakaroria. After arriving at Whakatū Nelson in the waka Uruao, Rākaihautū divided his crew into two. He led one group through the interior of Te Waipounamu, digging the freshwater lakes of the island. After digging the lakes Hāwea, Wānaka, and Whakatipu Waimāori, he travelled through the Greenstone and Hollyford valleys before finally digging Whakatipu Waitai (Lake McKerrow).[1]

The first non-Māori to see Lake Wakatipu was European Nathanael Chalmers who was guided by Reko, the chief of the Tuturau, over the Waimea Plains and up the Mataura River in September 1853.[2] Evidence of stake nets, baskets for catching eels, spears and ashes indicated the Glenorchy area was visited by Māori. It is likely Ngāi Tahu Māori visited Queenstown en route to collect Pounamu (greenstone). A settlement called Te Kirikiri Pa was occupied by the tribe of Kāti Māmoe which was situated where the Queenstown Gardens are today, but by the time European migrants arrived in the 1860s this settlement was no longer being used.[3]

European explorers William Gilbert Rees and Nicholas von Tunzelmann were the first non-Māori to settle the area. Rees established a high country farm in the location of Queenstown's current town centre in 1860, but the discovery of gold in the Arrow River in 1862 encouraged Rees to convert his wool shed into a hotel named the Queen's Arms, now known as Eichardt's.[4]

Many Queenstown streets bear names from the gold mining era (such as Camp Street) and some historic buildings remain. William's Cottage, the Lake Lodge of Ophir (now Artbay Gallery), Queenstown Police Station, and St Peter's Anglican Church lie close together in a designated historic precinct.

There was a severe weather event in the South Island in November 1999, bringing torrential rainfall in the catchments of Lake Wakatipu.[5] The level of the lake rose from 310.5 m to 312.77 m, leading to the most severe flooding in the recorded history of Queenstown. Properties in central Queenstown close to the lakeshore were flooded up to 1 m deep, causing major damage. Total insurance claims were around $50 million. Properties in Glenorchy and Kingston were also flooded, and the road from Queenstown to Glenorchy was damaged by washouts.[6][7]