The Erie Canal passes along the southern border of the town.
The region was controlled by the powerful Iroquois Confederation's member tribe, the Mohawk, prior to the entry of Europeans into the area.
The town was first settled around 1715, but most settlement did not take place until Sir William Johnson established his first seat of power in the region at Fort Johnson (earlier known as Mount Johnson), prior to founding the city of Johnstown.
The town was formed in 1793 from part of the previous "Town of Caughnawaga," which had been established in 1788 and named after a local Mohawk community. Caughnawaga was a large town, constituting much of Montgomery County north of the Mohawk River until its subdivision eliminated it. The division of Caughnawaga also create the towns of Broadalbin (in Fulton County), Johnstown, and Mayfield (Fulton County).
The village of Amsterdam was incorporated in 1838 in the south part of the town. As the village grew toward becoming the city of Amsterdam, it took in more territory inside the town. The town of Perth (also in Fulton County) was removed in 1838.
In 1865, the population of Amsterdam was 5,135.