At one time it was a southern terminus of a narrow-gauge railroad which extended north to Nahcotta. The town was named for El-wa-co Jim, a Indian, who married a daughter of Chief Comcomly of the Chinook people.
Captain James Johnson visited the harbor in 1848, took up a donation claim and built a house, but left shortly afterward. Actual settlement was begun by Henry Feister in 1851, when he opened an ox-team transportation system for hauling supplies to settlers on Shoalwater Bay (Willapa Harbor).
By the late 1860s the town was a stopping point on the expanding stagecoach and ferry route between Astoria, Oregon, and the Puget Sound country. Stagecoaches were displaced in 1889 by a narrow-gauge railroad, variously called the Ilwaco and Shoalwater Bay Railroad and the Ilwaco Railway and Navigation Company. The road came under the control of the Oregon-Washington Railroad and Navigation Company in 1889 and served the North Peninsula until abandoned in 1930.
Connecting with a ferry to Astoria, trains ran on a schedule that varied with the tides—it was only certain that no train would appear at the same hour two days in succession. Along the brief main thoroughfare, the trackage of the old railroad may still be seen.
Tall headlands on the west protect Ilwaco from blasts that seasonally rake the Pacific. The harbor, a haven for fishing vessels, has several salmon canneries; most of these have been closed since 1935.