Waterloo initiated on land that was part of a parcel of 675,000 acres (2,730 km2) assigned in 1784 to the Iroquois alliance that made up the League of Six Nations.

Between 1796 and 1798, 93,000 acres (380 km2) were sold through a Crown Grant to Richard Beasley, with the Six Nations Indians persisting to hold the mortgage on the lands.

The first immigrants bought deeds to land parcels from Beasley and began moving into the area in 1804. A group of 26 Mennonites merged resources to purchase all of the unsold land from Beasley and to release the mortgage held by the Six Nations Indians. They divided the land into smaller lots.

Abraham Erb owned two lots. He is often called the founder of Waterloo, as his sawmill and grist mill turned out the focal point of the area.

Waterloo was incorporated as a village in 1857 and became the Town of Waterloo in 1876 and the City of Waterloo in 1948.