The first European visit to the area was in 1839 by the second disastrous George Grey expedition along the west coast. Grey and his party were forced to walk through the area after their boats were lost. On 11 April, Grey discovered and named the Arrowsmith River, after John Arrowsmith the English cartographer.
In 1870 the first settler, William Horsley Rowland, arrived from Greenough. He took up a 3,000 acre lease at Eneabba Springs and survived by shepherding, trapping horses and pigs and living on wild game.
The area around Eneabba was opened up for agricultural purposes in the 1950s. This in turn initiated the need for a town to be developed. The town was gazetted in 1961.
The name of the town comes from the aboriginal name of the nearby Eneabba Springs. The meaning of the word is "small water". Early settlers called the same spring "pocket knife spring" from a story of the amazing powers of a knife that was dropped in the spring.