Petoskey and the surrounding area are notable for being the setting of several of the Nick Adams stories by Ernest Hemingway, who spent his childhood summers on nearby Walloon Lake, as well as being the place where for Calliope, the protagonist of Jeffrey Eugenides' Middlesex, events take a severe and lasting turn. Petoskey was also the location where 50,000 passenger pigeon birds were killed each day in the late 19th century, prior to their complete extinction in the early 20th century. A state historical marker commemorates the events, including the last great nesting in 1878. One hunter was reputed to have personally killed "a million birds" and earned $60,000, the equivalent of 1 million dollars today.
Petoskey is also famous for a high concentration of Petoskey stones, the state stone of Michigan. Petoskey is the birthplace of information theorist Claude Shannon and Civil War historian Bruce Catton and is the boyhood home of singer-songwriter Sufjan Stevens. Actress Megan Boone, star of the NBC television series The Blacklist that premiered in September 2013, was born in Petoskey.
The name "Petoskey" is said to mean "where the light shines through the clouds" in the language of the Odawa Indians (Little Traverse Bay Band), who are the original inhabitants. The Petoskey stone and the city were named after Chief Ignatius Petosega (1787–1885), who founded the community. Petosega's father was a French Canadian fur trader and his mother was an Odawa (Ottawa) Indian.
This city was the northern terminus of the Chicago and West Michigan Railway.