The individuality of the town of Bracebridge is formed by its proximity to Lake Muskoka to which it is connected by 6 miles of the Muskoka River. Early growth of the town developed in proximity to the falls which powered the first factory. The appearance of the Grand Trunk Railway cemented the town's role as a transportation hub for the area.

Modern establishment of the town began in the 1860s, beginning at first with a few log huts. With the advent of steamship service on Lake Muskoka a few years later, Bracebridge blossomed as the main distribution centre for the region.
By 1869, Bracebridge was a settlement with a population of 160 in the Township of Macaulay County, Victoria. By 1870 the village had a population of about 400. The village was incorporated in 1875 and became a town under an Act of Parliament in 1889. In 1894 Bracebridge became the first town in Ontario to have its own hydro generating station.

Bracebridge is the home of Santa's Village, a Christmas theme park, settled in 1955. It was encouraged by the town’s location at 45 degrees latitude, halfway between the equator and the North Pole. Bracebridge also contains Woodchester Villa, an unusual octagonal house.