This area was occupied by indigenous peoples for thousands of years. At the time of English encounter, it was territory of the Paugusset (an Algonquian-speaking tribe). English colonists affiliated with the contemporary New Haven Colony purchased land which today comprises Milford, Orange, and West Haven on February 1, 1639 from Ansantawae, chief of the local Paugusset. They knew the area as Wepawaug, named for the small river which runs through the town. Later the settlers named streets in both Milford and Orange as Wepawaug.

The settlers built a grist mill by the Wepawaug River in 1640, to take advantage of its water power.

During the Revolutionary War, the Milford section of the Boston Post Road, a vital route connecting Boston, New York and other major coastal cities, was blockaded by Continental forces, and Fort Trumbull was constructed to protect the town. The site of the blockade is commemorated by the Liberty Rock monument.

By 1822, the town had grown large enough that residents in the northern and eastern sections of Milford chartered the Town of Orange. During the next century and a half, the remaining section of Milford was known for shipbuilding, farming and oystering. Some industrial facilities were also developed in town.

Because of its location on Long Island Sound, during the later 19th century, Milford also became known as a beach resort for residents of New Haven and Bridgeport.

In 1899, the "Memorial Bridge" (a "stone bridge and tower commemorating the town's history and founders") replaced the last mill over the Wepawaug, which had closed in 1894. The bridge was described as "simple in design, its broad copings surmounted with rough hewn blocks of granite, bearing the names of the first settlers. There are ten blocks on the south and twenty on the north coping. At each end of the former is a stone four feet wide by five and a half high." It is located where Broad Street crosses the Wepawaug River.

In 1903, the southeastern portion of the town was incorporated as the Borough of Woodmont. In 1959, the Town of Milford, including the Borough of Woodmont, was incorporated as the City of Milford.

Milford was one of the early settlements in south central Connecticut and, over time, gave rise to several new towns that broke off and incorporated separately. The following is a list of towns created from parts of Milford.

Starting in 1902, Quaker Oats oatmeal boxes came with a coupon redeemable for the legal deed to a tiny lot in Milford. The lots, sometimes as small as 10 feet (3 m) by 10 feet, were carved out of a 15-acre (6.1 ha) tract in a never-built subdivision called "Liberty Park". A small number of children (or their parents), often residents living near Milford, collected the deeds and started paying the extremely small property taxes on the "oatmeal lots". The developer of the prospective subdivision hoped the landowners would hire him to build homes on the lots, although several lots would need to be combined before building could start. Since the subdivision into small lots predated Milford's planning and zoning regulations, the deeds were entirely legal, although they created a large amount of paperwork for town tax collectors, who frequently couldn't find the property owners and received almost no tax revenue from the lots.

In the mid-1970s, when the town wanted to develop the area, town officials put an end to the oatmeal lots in a "general foreclosure" that avoided the enormous expense of individual foreclosures by condemning nearly all of the property in one legal filing. One of the streets in the Liberty Park subdivision plans, Shelland Street, was later built in the late 1990s as an access road to the Milford Power Company. The site is currently home to the Bic Corporation's lighter factory at 565 Bic Drive.

In a separate land giveaway in 1955 tied to the Sergeant Preston of the Yukon television show, Quaker Oats offered in its Puffed Wheat and Puffed Rice cereal boxes genuine deeds to land in the Klondike.

In the post-World War II period, Milford—like many Connecticut towns—underwent significant suburbanization. Interstate 95 was routed through town, and the Milford section was completed in 1958.

The 1960s and 1970s witnessed the construction of the Connecticut Post Mall, one of the state's largest shopping malls, and the extensive commercial development of the town's stretch of the Boston Post Road. One notable small business located on the Boston Post Road during the 1970s was SCELBI Computer Consulting, credited by many as being the world's first personal-computer manufacturer. Starting in 1975, the city began hosting the Milford Oyster Festival, which has since become firmly established as an annual Milford tradition that is held "rain or shine".

The city became host to several headquarters of multinational corporations, including the Schick Shaving company, and Doctor's Associates, Inc., owners of the Subway chain of fast-food restaurants. The US operations of BIC were headquartered in Milford, but in March 2008 moved most of its operations to Shelton. Milford Hospital has also developed into an important health care resource for the area. It has also become home of smaller national corporations such as K-Mart and Orchid Medical.

According to the 2010 US census Demographic Profile Data, there were 51,271 people living in 21,017 housing units of which 13,534 were counted as family households. The population density was 2,341/sq mi (904/km2). The average density of housing units was 1,017.7 per square mile. The racial makeup of Milford was 93.55% White, 1.91% African American, 0.13% Native American, 2.36% Asian, 0.03% Pacific Islander, 0.88% from other races, and 1.14% from two or more races. Hispanic or Latino people of any race were 3.34% of the population.

Of the aforementioned households 29.3% had children under the age of 18 living with them, 54.7% were married couples living together, 9.7% had a female householder with no husband present, and 32.4% were non-families. 26.3% of all households were made up of individuals, and 10.3% had someone living alone who was 65 years of age or older. The average household size was 2.49 and the average family size was 3.04.

(In Milford the population was 22.4% under the age of 18, 5.9% from 18 to 24, 31.7% from 25 to 44, 25.0% from 45 to 64, and 14.9% who were 65 years of age or older. The median age was 39 years. For every 100 females, there were 93.6 males. For every 100 females age 18 and over, there were 90.0 males.)

As of the 2000 census, the median income for a household was $61,183. The per capita income was $28,773. About 2.4% of families and 3.8% of the population were below the poverty line, including 4.1% of those under age 18 and 5.4% of those age 65 or over.

The Census Bureau's 2010–2012 American Community Survey showed that (in 2012 inflation-adjusted dollars) median household income was $77,925 and the median family income was $93,697. Year-round male workers had a median income of $67,631 versus $59,992 for females. The per capita income for the city was $38,560.