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The site of Olympia was home to Lushootseed-speaking peoples for thousands of years, including Squaxin, Nisqually, Puyallup, Chehalis, Suquamish, and Duwamish. The first recorded visit by Europeans was in 1792 when Peter Puget and a crew from the British Vancouver Expedition charted the site.

In the 1840s, Edmund Sylvester and Levi Smith jointly claimed the land that now comprises downtown Olympia. In 1851, the U.S. Congress established the Customs District of Puget Sound for Washington Territory and Olympia became the home of the customs house. Its population being steadily expanded from Oregon Trail immigrants, in 1853 the town settled on the name Olympia, at the suggestion of local resident Colonel Isaac N. Ebey, due to its view of the Olympic Mountains to the northwest. The area began to be served by a small fleet of steamboats known as the Puget Sound Mosquito Fleet.

In 1896, Olympia became the home of the Olympia Brewing Company, which brewed Olympia Beer until 2003.

A 1949 earthquake damaged many historic buildings beyond repair, and they were demolished. Parts of the city also suffered damage from earthquake tremors in 1965 and the 2001 Nisqually earthquake.

In 1967, the state legislature approved the creation of The Evergreen State College in Olympia. Because of the college's presence, Olympia has become a hub for artists and musicians, and was recently named one of the best college towns in the nation for its vibrant downtown and access to outdoor activities.

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