Long the traditional territory of the Iroquoian-speaking Oneida people of the Haudenosaunee, the Waterville area was first settled by European Americans circa 1792 after the United States victory in the American Revolutionary War. The US forced the Iroquois Confederacy to cede most of its land in New York state. The settlement was known as "The Huddle". In 1808, the settlement formally took the name of Waterville. The village is named after Waterville, Maine.
Hops (humulus lupulus) were introduced to the area in about 1820; by 1875, Waterville was considered the "Hops Capital of the World." Several inventions related to the cultivation and curing of hops were developed locally, the most important of which was liquid hop extract. The International Hop Stock Exchange was established in the 1860s.
With the introduction of railway service in 1867, Waterville became a major shipping point for hops-related cargo; "Waterville Hops" and hop extract were shipped to brewers all over the world. The economic prosperity fueled by the hop industry was reflected by merchants building fine Victorian-style homes. By the 1920s, hop production began to wane, due primarily to poor agricultural technology. By the close of the 1940s, Waterville's working hop farms had all been converted to other uses. Some locals continue to grow hops as a recreational "tip of the hat" to Waterville's past.
The Loomis Gang, a notorious group of horse thieves, lived and operated in the Waterville area during the mid-nineteenth century. Beyond documented history, there is much folklore associated with the Loomis family, including legends of ghosts that haunt the Nine Mile Swamp area located one mile south of Waterville.