The site of Olympia had been home to Lushootseed-speaking peoples known as the Steh-Chass (or Stehchass, later part of the post-treaty Squaxin Island Tribe) for thousands of years. Other Native Americans regularly visited the head of Budd Inlet and the Steh-Chass including the other ancestor tribes of the Squaxin, as well as the Nisqually, Puyallup, Chehalis, Suquamish, and Duwamish. The first recorded Europeans came to Olympia in 1792. Peter Puget and a crew from the British Vancouver Expedition are said to have explored the site, but neither recorded any encounters with the resident Indigenous population here. In 1846, Edmund Sylvester and Levi Lathrop Smith jointly claimed the land that is now 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 steadily expanded from Oregon Trail immigrants. In 1850, the town settled on the name Olympia, at the suggestion of local resident Colonel Isaac N. Ebey, because of 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.

Over the course of two days, December 24–26, 1854, Governor Isaac I. Stevens negotiated the Treaty of Medicine Creek with the representatives of the Nisqually, Puyallup, Squawksin, Steh'Chass, Noo-Seh-Chatl, Squi-Aitl, T'Peeksin, Sah-Heh-Wa-Mish, and S'Hotl-Ma-Mish tribes. Stevens' treaty included the preservation of Indigenous fishing, hunting, gathering and other rights. It also included a section which, at least as interpreted by United States officials, required the Native American signatories to move to one of three reservations. Doing so would effectively force the Nisqually people to cede their prime farming and living space. One of the leaders of the Nisqually, Chief Leschi, outraged, refused to give up ownership of this land and instead fought for his peoples' right to their territory, sparking the beginning of the Puget Sound War. The war ended in the controversial execution of Leschi.

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

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

Olympia is located at 47°2′33″N 122°53′35″W / 47.04250°N 122.89306°W / 47.04250; -122.89306 (47.042418, −122.893077).

According to the United States Census Bureau, the city has a total area of 19.68 square miles (50.97 km²), of which 17.82 sq mi (46.15 km²) are land and 1.86 sq mi (4.82 km²) are water.

The city of Olympia is located at the southern end of Puget Sound on Budd Inlet. The Deschutes River estuary was dammed in 1951 to create Capitol Lake. Much of the lower area of downtown Olympia sits on reclaimed land. The cities of Lacey and Tumwater border Olympia.

The region surrounding Olympia has a warm-summer Mediterranean climate (Köppen Csb), whereas the local microclimate has dry summers and cool July and August overnight lows. It is part of USDA Hardiness zone 8a, with isolated pockets around Puget Sound falling under zone 8b. Most of western Washington's weather is brought in by weather systems that form near the Aleutian Islands in Alaska. It contains cold moist air, which brings western Washington cold rain, cloudiness, and fog. November through January are Olympia's rainiest months. City streets, creeks, and rivers can flood during the months of November through February. The normal monthly mean temperature ranges from 38.4 °F (3.6 °C) in December to 64.1 °F (17.8 °C) in August. Seasonal snowfall for 1981–2010 averaged 10.8 inches (27.4 cm) but has historically ranged from trace amounts in 1991–92 to 81.5 in (207 cm) in 1968–69.

Olympia averages 50 inches (1,270 mm) of precipitation annually and has a year-round average of 75% cloud cover. Annual precipitation has ranged from 29.92 in (760 mm) in 1952 to 66.71 in (1,694 mm) in 1950; for water year (October 1 – September 30) precipitation, the range is 32.71 in (831 mm) in 2000–01 to 72.57 in (1,843 mm) in 1998–99. With a period of record dating back to 1948, extreme temperatures have ranged from −8 °F (−22 °C) on January 1, 1979, up to 104 °F (40 °C), most recently on July 29, 2009; the record cold daily maximum is 18 °F (−8 °C) on January 31, 1950, while, conversely, the record warm daily minimum is 69 °F (21 °C) on July 22, 2006. On average, there are 6.3 days annually with temperatures reaching 90 °F (32 °C), 1.8 days where the temperature stays at or below freezing all day, and 78 nights where the low reaches the freezing mark. The average window for freezing temperatures is October 8 through May 3, allowing a growing season of 157 days, nearly 100 days shorter than in nearby Seattle.

Olympia has a wide array of public parks and nature conservation areas. The Woodard Bay Natural Resources Conservation Area is a 600-acre (2.4 km²) parcel that preserves more than 5 miles (8.0 km) of Puget Sound waterfront along the Woodard and Chapman Bays of the Henderson Inlet. Percival Landing Park includes 0.9 miles (1.4 km) of boardwalk along Budd Inlet, as well as a playground, picnic areas, and a large open space. The boardwalk leads north to an open-air amphitheater, a viewing tower beside the Port of Olympia, as well as the Olympia Farmers' Market. Percival Landing closed in 2010 for an extensive remodel after saltwater degradation and opened again to the public in the summer of 2011. Watershed Park is the site of the former waterworks for the city and today has a loop trail with a large second-growth forest. Other parks include Priest Point Park, Burfoot Park, Woodruff Park, Sunrise Park, and Yauger Park, which is home to one of Olympia's public skate parks, also Friendly Grove, which is nestled in a small Eastside Community, and Trillium Park, which was created by the efforts of adjoining neighborhood associations with the easement of private property. The Nisqually National Wildlife Refuge is located just outside Olympia, as is the Capitol State Forest.

Olympia was historically dependent on artesian waters. Early settlers in Swantown and Tumwater used artesian springs for their main water supply. The artesian spring at Fourth Avenue and Main Street (now called Capitol Way) was the main community well where settlers, as well as the local Steh-Chass and visiting Native Americans, gathered to socialize. Settler accounts recall paying Native Americans to collect water here. The artesian well at Artesian Commons park, a former parking lot, is active. Another still flows at the corner of Olympia Avenue and Washington Street. A small park was constructed around another spring in the Bigelow Neighborhood. The northeast end of Capitol Lake was the location of an artesian well until the construction of a new park that included changes to the shoreline. McAllister Springs, the main water source for Olympia, is fed by artesian wells, and the former Olympia Brewery is supplied by 26 artesian wells.

Efforts to protect and preserve the free flowing artesian well on 4th Ave in downtown Olympia began in 1991 when Jim Ingersoll, a local psychologist, called on the city council to acquire the well and develop it as a community park. Ingersoll's interest in the well started in a conversation with Dick Batdorf, co-founder of Batdorf & Bronson coffee roasting. Batdorf told Ingersoll that the secret to great coffee was great water – specifically artesian water. Subsequently, Ingersoll met at the Spar restaurant with Herb Legg and John Robinson both of whom had worked in the 1950s and 60s to protect the artesian wells in Watershed Park. Legg and Robinson worked behind the scenes to get an article published in the Olympian on February 24, 1992, calling for community support of the well. Ingersoll was flooded with phone calls offering time, talent, resources and money following the publication. Herb Legg and friends sponsored a public meeting at the Library where more than 50 people each donated $50. And a single $3000 donation followed the next day.

With hundreds of people using the well every day, community support grew to become "The Friends of Artesians", an informal organization of advocates who over the course of 20 years mapped and researched the history of artesian wells in Olympia, raised money to test water quality and make improvements to the site and kept the vision of a free flowing community well alive. In the fall of 2008, The Friends announced they would stop testing the water quality after February 2009. These actions renewed interest in protecting the well and led to the creation of H2Olympia, a non-profit organization.

In downtown Olympia, efforts to preserve the use of artesian water at the one remaining public well has been the mission of H2Olympia: Artesian Well Advocates. In 2011, the city of Olympia committed $50,000 towards improvements of an artesian well, located in a parking lot that was purchased by the city the same year. Renovations at the artesian well were completed in late 2011, including surface improvements, solar lighting, and a raised area to fill bottles. In spring of 2012, sea-themed mosaic artwork created by community members was also installed at the site of the well.

As of the census of 2010, there were 46,478 people, 20,761 households, and 10,672 families residing in the city. The population density was 2,608.2 inhabitants per square mile (1,007.0/km²). There were 22,086 housing units at an average density of 1,239.4 per square mile (478.5/km²). The racial makeup of the city was 83.7% White, 2.0% African American, 1.1% Native American, 6.0% Asian, 0.4% Pacific Islander, 1.8% from other races, and 5.0% from two or more races. Hispanic or Latino of any race were 6.3% of the population.

There were 20,761 households, of which 25.6% had children under the age of 18 living with them, 36.2% were married couples living together, 11.3% had a female householder with no husband present, 3.9% had a male householder with no wife present, and 48.6% were other families. 36.3% of all households were made up of individuals, and 11.7% had someone living alone who was 65 years of age or older. The average household size was 2.18 and the average family size was 2.83.

The median age in the city was 38 years. 19.5% of residents were under the age of 18; 11.2% were between the ages of 18 and 24; 28.5% were from 25 to 44; 26.7% were from 45 to 64; and 13.9% were 65 years of age or older. The gender makeup of the city was 47.3% male and 52.7% female.

As of the census of 2000, there were 42,514 people, 18,670 households, and 9,968 families residing in the city. The population density was 2,544.4 people per square mile (982.3/km²). There were 19,738 housing units at an average density of 1,181.3 per square mile (456.1/km²). The racial makeup of the city was 85.3% White, 1.9% African American, 1.3% Native American, 5.8% Asian, 0.3% Pacific Islander, 1.7% from other races, and 3.8% from two or more races. Hispanic or Latino of any race were 4.4% of the population. 15.0% were of German, 11.3% Irish, 10.0% English, 6.0% Norwegian and 5.3% American ancestry. 91.6% spoke English, 2.9% Spanish and 1.7% Vietnamese as their first language.

There were 18,670 households, out of which 26.8% had children under the age of 18 living with them, 39.6% were married couples living together, 10.4% had a female householder with no husband present, and 46.6% were non-families. 35.2% of all households were made up of individuals, and 10.7% had someone living alone who was 65 years of age or older. The average household size was 2.21 and the average family size was 2.88.

In the city, the population was spread out, with 21.5% under the age of 18, 11.9% from 18 to 24, 30.4% from 25 to 44, 22.9% from 45 to 64, and 13.3% who were 65 years of age or older. The median age was 36 years. For every 100 females, there were 91.5 males. For every 100 females age 18 and over, there were 88.1 males.

The median income for a household in the city was $40,846, and the median income for a family was $54,136. Males had a median income of $41,267 versus $31,515 for females. The per capita income for the city was $22,590. About 6.9% of families and 12.1% of the population were below the poverty line, including 10.4% of those under age 18 and 6.3% of those age 65 or over.