Although many believed the name's origin was Aboriginal, with the Wyong Shire originally claiming it meant "hills surrounded by water", the Geographic Names Board later confirmed there was no Aboriginal significance to the name, with the two most likely sources being a corruption of the Japanese surname Watanabe, ascribed to a friend of well-travelled pioneer Albert Warner, or a comment made by early landowner Allan Chapman about the "nobby" shape of the surrounding terrain, have been suggested. Landowners, claiming they were the butt of rude jokes and that the suburb's house prices had remained static relative to other areas, attempted unsuccessfully to have the name changed to Chapman Gardens in early 2002.
Watanobbi in the last 15 years has seen the removal of grazing livestock and horses to make way for the local Community Centre. Watanobbi also used to hold two legs of the locally famous Watagan Stages car rally; now modern housing occupy those dirt roads. During its most popular days as "the largest Home Show outside of Sydney" Watanobbi boasted outside public toilets, a Commonwealth Bank lending office and as many as 5 different home builders offices on site. These included Masterton Homes and A.V. Jennings Homes (when A.V. Jennings was alive).