Port Ellen is named after the wife of the founder, Frederick Campbell of Islay. Its previous name, Leòdamas, is derived from old Norse meaning "Leòd's Harbour".
Port Ellen is built around Leodamais Bay, Islay's main deep water harbour. It is the largest town on Islay, only slightly larger than Bowmore and provides the main ferry connection between Islay and the mainland, at Kennacraig. The Port Ellen Distillery was first established in the 1820s and ceased production of Scotch whisky in 1983. The large malting continues to produce for the majority of the distilleries on Islay.
The area around Port Ellen has a variety of archaeological sites covering the Neolithic, Bronze and Iron Age periods. There are standing stones at Kilbride, a fort at Borraichill Mor, several chambered cairns, and a chapel at Cill Tobar Lasrach. Nearby lie the ruined remains of the 14th-century Dunyvaig Castle, once a fortress of the MacDonald Lords of the Isles.