When settlers arrived at Yarmouth's site around 1636, they found a fort already built. The fort had for some time been occupied by George Felt, who had in turn purchased it from John Phillips, a Welshman. In 1646, William Royall purchased a farm on the river which has ever-since borne his last name (minus the second L). This stream and its vicinity were called by the Indians "Westcustogo" — a name that, until the early 1990s, was preserved by an inn of the same name on Princes Point Road at its intersection with Lafayette Street. (The building remains, but it is now occupied by another business.) There is also a Westcustogo Park in North Yarmouth. John Cousins had arrived a year or more earlier than Royall, occupying the neck of land between the branches of the stream which has since been called Cousins River, and owning the island now bearing his name.
In 1674, the first sawmill was built at the Royal River's first waterfalls. There are three other falls in Yarmouth: the second (which is actually a dam) is just north of the Sparhawk Mill, on Bridge Street; the third, a paper mill (owned by The Forest Paper Company) whose remnants can still be seen, is within the bounds of Royal River Park; and the fourth is another dam, near the intersection of East Elm Street and Melissa Drive.
Some settlers returned to their dwellings in 1679, and within twelve months the region became incorporated as North Yarmouth, the eighth town of the province of Maine. Around the same time, saw and gristmills at the first falls were rebuilt.
In 1688, while the inhabitants on the eastern side of the river were building a garrison, they were attacked by Indians, and attempted a defense. They continued the contest until nightfall, when the Indians retired. It was not long before they appeared again, in such force that the thirty-six families of the settlement were forced to flee, abandoning their homes for a second time.
The unrest kept the area deserted for many years, but by 1715 settlers revisited their homes, by which point they found their fields and the sites of their habitations covered by a young growth of trees. In 1722, a "Committee for the Resettlement of North Yarmouth" was formed in Boston, Massachusetts. North Yarmouth held its first town meeting on May 14, 1733. The structural frame of the first meeting house was raised in 1729, and nine years later the first school was built.
Once resettlement began, the town's population began to grow rapidly. By 1764, 1,098 individuals lived in 154 houses. By 1810, the population was 3,295. During a time of peace, settlement began to relocate along the coast and inland.
The town's Main Street gradually became divided into the Upper Village and Lower Falls, the split roughly located around the present-day U.S. Route 1 overpass. In 2014, the overpass, which was built in the 1950s, became a source of discussion after the Maine Department of Transportation told the town that it either needs renovated or torn down. MDOT originally offered six options: two featuring a roundabout, a two-lane bridge, a four-lane bridge, and two ideas for removing the bridge and creating intersections at Main Street. The town, in turn, narrowed the choices down to a two-lane bridge and the smaller of the two intersection options. A decision is planned for June 2015.
Among the new proprietors at the time were descendants of the Plymouth Pilgrims. Until after the year 1756 the Indians were again very troublesome. In 1725, William and Matthew Scales and Joseph Felt were killed, and the wife and children of the latter was carried into captivity. A grandson of Felt, Joseph Weare, became a noted scout, pursuing the Native Americans at every opportunity. In August 1746, a party of thirty-two Indians secreted themselves near the lower falls for the apparent purpose of surprising Weare's garrison, in the process killing Philip Greely, who came upon them. This was the last act of resistance by the indigenous people to occur within the limits of the town.
Yarmouth constituted the eastern part of North Yarmouth until 1849, when it was set off and incorporated as an independent town. The split occurred due to bickering between the inland, farming-based contingent and the coastal maritime-oriented community. Unable to resolve this difference, the two halves of the town separated into present-day Yarmouth and North Yarmouth.
By 1850, Yarmouth's population was 2,144, and very little changed over the hundred years that followed.
18th- and 19th-century business relied heavily upon a variety of natural resources. Once lumber was cut and sent to market, the land was farmed. Tanneries were built near brooks; potteries and brickyards put to use the natural clay in the area; and mills flourished along the Royal River, providing services such as iron-forging and fulling cloth.
Maritime activities were important from the beginning of the third settlement. Lumber from inland areas was shipped out from the harbor. Vessels were being built by 1740, and by 1818 shipbuilding in the area was in full swing, though Yarmouth's industry peaked in the 1870s, and declined rapidly shortly thereafter. The final large sailing vessel was built in 1890. Almost three hundred vessels were launched by Yarmouth's shipyards in the century between 1790 and 1890.
Rapid growth was experienced again around 1948 when Route 1 was constructed. Two years later, there were 2,699 inhabitants of the town. Interstate 295 was built through the harbor in 1961, and the town grew from 4,854 residents in 1970 to 8,300 thirty-five years later.
19th- and 20th-century business that existed on Main Street in Yarmouth's Lower Falls section included:
Businesses in the Upper Village and the area around the intersection of Main and Elm Street, which officially became known as Yarmouthville in 1882, included:
The section of town between the Upper Village and Lower Falls was known as Brickyard Hollow, named for John Collins' brickyard. A post office also existed, to the east of the present-day American Legion Hall.
On January 2, 2009, twenty-six businesses located at 500 Route 1 were destroyed in an arson attack. The entire block, located near to the point at which Route 1 passes over Main Street, was pulled down shortly thereafter. Damage was estimated to be between $2 million and $4 million. Everett Stickney, of Exeter, New Hampshire, was convicted of starting the fire, along with another one in York, Maine, later that evening. On November 12, 2009, Stickney was sentenced to an eleven-and-a-half-year prison term and ordered to pay $3.7 million in compensation. The building was replaced in 2008 and several businesses have moved in.
As of the early 2010s Yarmouth is mostly residential in character, with commercial development scattered throughout the town, particularly along Route 1 and Main Street (State Route 115).