In 1638, the Dutch West India Company purchased the area's land from the Lenape Native Americans who occupied the area. In 1661, the company chartered the Town of Boswijck, including land that would later become Williamsburg. After the English takeover of New Netherland in 1664, the town's name was anglicized to Bushwick. During colonial times, villagers called the area "Bushwick Shore", a name that lasted for about 140 years. Bushwick Shore was cut off from the other villages in Bushwick by Bushwick Creek to the north and by Cripplebush, a region of thick, boggy shrub land that extended from Wallabout Creek in the south to Newtown Creek in the east. Bushwick residents called Bushwick Shore "the Strand".

Farmers and gardeners from the other Bushwick villages sent their goods to Bushwick Shore to be ferried across the East River to Manhattan for sale via a market at present day Grand Street. Bushwick Shore's favorable location close to New York City led to the creation of several farming developments. In 1802, real estate speculator Richard M. Woodhull acquired 13 acres (53,000 m²) near what would become Metropolitan Avenue, then North 2nd Street. He had Colonel Jonathan Williams, a U.S. Engineer, survey the property, and named it Williamsburgh (with an h at the end) in his honor. Originally a 13-acre (53,000 m²) development within Bushwick Shore, Williamsburg rapidly expanded during the first half of the nineteenth century and eventually seceded from Bushwick and formed its own independent city.Abraham J. Berry was the first mayor of the independent city of Williamsburgh; the "H" at the end of the name was dropped in 1855.

Williamsburg was incorporated as the Village of Williamsburgh within the Town of Bushwick on April 14, 1827. In two years, it had a fire company, a post office, and a population of over 1,000. The deep drafts along the East River encouraged industrialists, many from Germany, to build shipyards around Williamsburg. Raw material was shipped in, and finished products were sent out of factories straight to the docks. Several sugar barons built processing refineries, all of which are now gone, except the refinery of the now-defunct Domino Sugar (formerly Havemeyer & Elder). Other important industries included ship-building and brewing.

On April 18, 1835, the Village of Williamsburg annexed a portion of the Town of Bushwick. The Village then consisted of three districts. The first district was commonly called the "South Side", the second district was called the "North Side", and the third district was called the "New Village". The names "North Side" and "South Side" remain in common usage today, but the name for the Third District has changed often. The New Village became populated by Germans, and for a time was known by the sobriquet of "Dutchtown". In 1845, the population of Williamsburgh was 11,500.

Reflecting its increasing urbanization, Williamsburg separated from Bushwick as the Town of Williamsburg on April 7, 1840. Edmund Smith Driggs (1809-1889) was a Williamsburg resident and was elected the first president of the Village of Williamsburg in 1850. He was also president of the Williamsburg City Fire Insurance Company and built a row of houses on South Second Street. Driggs Avenue is named after him.

It became the City of Williamsburg (discarding the "h") in 1855, which was organized into three wards. The old First Ward roughly coincides with the South Side, and the Second Ward with the North Side, with the modern boundary at Grand Street. The Third Ward was to the east of these, stretching from Union Avenue east to Bushwick Avenue, beyond which is Bushwick (some of which is now called East Williamsburg).

In 1855, the City of Williamsburg, along with the adjoining Town of Bushwick, were annexed into the City of Brooklyn as the so-called Eastern District. The First Ward of Williamsburg became Brooklyn's 13th Ward, the Second Ward Brooklyn's 14th Ward, and the Third Ward Brooklyn's 15th and 16th Wards.

During its period as part of Brooklyn's Eastern District, the area achieved remarkable industrial, cultural, and economic growth, and local businesses thrived. Wealthy New Yorkers such as Cornelius Vanderbilt and railroad magnate Jubilee Jim Fisk built shore-side mansions. Charles Pratt and his family founded the Pratt Institute, the great school of art & architecture, and the Astral Oil Works, which later became part of Standard Oil. Corning Glass Works was founded here, before moving upstate to Corning, New York. German immigrant, chemist Charles Pfizer founded Pfizer Pharmaceutical in Williamsburg, and the company maintained an industrial plant in the neighborhood through 2007, although its headquarters were moved to Manhattan in the 1960s.

Brooklyn's Broadway, ending in the ferry to Manhattan, became the area's lifeline. The area proved popular for condiment and household product manufacturers. Factories for Domino Sugar, Esquire Shoe Polish, Dutch Mustard, and many others were established in the late 19th and early 20th century.^{[citation needed]} Many of these factory buildings are now being (or already have been) converted to non-industrial uses, primarily residential.

The population was at first heavily German, but many Jews from the Lower East side of Manhattan came to the area after the completion of the Williamsburg Bridge in 1903. Williamsburg had two major community banks: the Williamsburgh Savings Bank (chartered 1851, since absorbed by HSBC); and its rival, the Dime Savings Bank of Williamsburgh (chartered 1864, now known as the DIME, has remained independent). The area around the Peter Luger Steak House, established in 1887, in the predominantly German neighborhood under the Williamsburg Bridge, was a major banking hub, until the City of Brooklyn united with New York City. One of the early high schools in Brooklyn, the Eastern District High School, opened here in February 1900.

In 1898, Brooklyn became one of five boroughs within the City of Greater New York, and the Williamsburg neighborhood was opened to closer connections with the rest of the newly consolidated city. Just five years later, the opening of the Williamsburg Bridge in 1903 further opened up the community to thousands of upwardly mobile immigrants and second-generation Americans fleeing the over-crowded slum tenements of Manhattan's Lower East Side. Williamsburg itself soon became the most densely populated neighborhood in New York City, which, in turn, was the most densely populated city in the United States. The novel A Tree Grows in Brooklyn addresses a young girl growing up in the tenements of Williamsburg during this era.

Brooklyn Union Gas in the early 20th century consolidated its coal gas production to Williamsburg at 370 Vandervoort Avenue, closing the Gowanus Canal gasworks. The 1970s energy crisis led the company to build a syngas factory. Late in the century, facilities were built to import liquefied natural gas from overseas. The intersection of Broadway, Flushing Avenue, and Graham Avenue was a cross-roads for many "inter-urbans", prior to World War I. These light rail trolleys ran from Long Island to Williamsburg.

Refugees from war-torn Europe began to stream into Brooklyn during and after World War II, including the Hasidim, whose populations had been devastated in the Holocaust. The area south of Division Avenue became home to a large population of adherents to the Satmar Hasidic sect, who came to the area from Hungary and Romania. Hispanics from Puerto Rico and the Dominican Republic also began to settle in the area. But the population explosion was eventually confronted with a decline of heavy industry, and from the 1960s, Williamsburg saw a marked increase in unemployment, crime, gang activity, and illegal drug use. Those who were able to move out often did, and the area became chiefly known for its crime and other social ills.

On February 3, 1971, at 10:42 p.m., police officer Frank Serpico was shot during a drug bust, during a stakeout at 778 Driggs Avenue. Serpico had been one of the driving forces in the creation of the Knapp Commission, which exposed widespread police corruption. His fellow officers failed to call for assistance, and he was rushed to Greenpoint Hospital only when an elderly neighbor called the police. The incident was later dramatized in the opening scene of the 1973 film Serpico, starring Al Pacino in the title role.

Low rents were a major reason artists first started settling in the area, but that situation has drastically changed since the mid-1990s. Average monthly rents in Williamsburg can range from approximately $1400 for a studio apartment to $1,600–2,400 for a one-bedroom and $2,600–4,000 for a two-bedroom. The price of land in Willamsburg has skyrocketed. The North Side, above Grand Street, which separates the North Side from the South Side, is somewhat more expensive due to its proximity to the New York City Subway (specifically, the L train and G train on the BMT Canarsie Line and IND Crosstown Line, respectively). More recent gentrification and the route of the M train (whose route was modified to go from the downtown BMT Nassau Street Line to the midtown IND Sixth Avenue Line in 2010), however, have prompted increases in rents south of Grand Street as well. Higher rents have driven out many bohemians and hipsters to other neighborhoods farther afield such as Bushwick, Bedford-Stuyvesant, Fort Greene, Clinton Hill, Cobble Hill, and Red Hook.

On May 11, 2005, the New York City Council passed a large-scale rezoning of the North Side and Greenpoint waterfront. Much of the waterfront district was rezoned to accommodate mixed-use high density residential buildings with a set-aside (but no earmarked funding) for public waterfront park space, with strict building guidelines calling for developers to create a continuous two-mile-long string of waterfront esplanades. Local elected officials touted the rezoning as an economically beneficial way to address the decline of manufacturing along the North Brooklyn waterfront, which had resulted in a number of vacant and derelict warehouses in Williamsburg.

The rezoning represented a dramatic shift of scale in the ongoing process of gentrification in the area since the early 1990s. The waterfront neighborhoods, once characterized by active manufacturing and other light industry interspersed with smaller residential buildings, were re-zoned primarily for residential use. Alongside the construction of new residential buildings, many warehouses were converted into residential loft buildings. Among the first was the Smith-Gray Building, a turn-of-the-century structure recognizable by its blue cast-iron facade. The conversion of the former Gretsch music instrument factory garnered significant attention and controversy in the New York press primarily because it heralded the arrival in Williamsburg of Tribeca-style lofts and attracted, as residents and investors, a number of celebrities.

Officials championing the rezoning cited its economic benefits, the new waterfront promenades, and its inclusionary housing component – which offered developers large tax breaks in exchange for promises to rent about a third of the new housing units at "affordable" rates. Critics countered that similar set-asides for affordable housing have gone unfulfilled in previous large-scale developments, such as Battery Park City. The New York Times reported this proved to be the case in Williamsburg as well, as developers largely decided to forgo incentives to build affordable housing in inland areas.

For census purposes, the New York City government classifies Williamsburg as part of two neighborhood tabulation areas: Williamsburg, and North Side/South Side. Based on data from the 2010 United States Census, the combined population of the Williamsburg and North Side/South Side areas was 78,700, a change of 6,301 (8%) from the 72,399 counted in 2000. Covering an area of 923.54 acres (373.74 ha), the neighborhood had a population density of 85.2 inhabitants per acre (54,500/sq mi; 21,100/km²).

The racial make-up of the neighborhood was 66.5% (52,334) White, 2.8% (2,186) African American, 0.1% (86) Native American, 2.9% (2,275) Asian, 0% (21) Pacific Islander, 0.3% (260) from other races, and 1% (811) from two or more races. Hispanic or Latino of any race were 26.3% (20,727) of the population.

The entirety of Community Board 1, which comprises Greenpoint and Williamsburg, had 199,190 inhabitants, as of NYC Health's 2018 Community Health Profile, with an average life expectancy of 81.1 years.^{:2, 20} This is about the same as the median life expectancy of 81.2 for all New York City neighborhoods.^{:53 (PDF p. 84)} Most inhabitants are middle-aged adults and youth: 23% are between the ages of 0–17, 41% between 25–44, and 17% between 45–64. The ratio of college-aged and elderly residents was lower, at 10% and 9%, respectively.

As of 2016, the median household income in Community Board 1 was $76,608. In 2018, an estimated 17% of Greenpoint and Williamsburg residents lived in poverty, compared to 21% in all of Brooklyn and 20% in all of New York City. Less than one in fifteen residents (6%) were unemployed, compared to 9% in the rest of both Brooklyn and New York City. Rent burden, or the percentage of residents who have difficulty paying their rent, is 48% in Greenpoint and Williamsburg, slightly lower than the citywide and boroughwide rates of 52% and 51%, respectively. Based on this calculation, as of 2018, Greenpoint and Williamsburg are considered to be gentrifying.^:7