The Town of Manchester-by-the-Sea was included in a grant of land to the Massachusetts Bay Colony made in 1629 by Charles I who signed their charter in that year. By June of the same year the first ship, the Talbot, dropped anchor in Manchester Harbor carrying settlers for the new town. Formally incorporated in 1645, the young community displayed its moral foundations by adopting a set of laws and regulations that prohibited the slave trade, made cruelty to animals a civil offence and forbade imprisonment for debt. Historians point out that these goodly beginnings may have led the colonists to go overboard as they continued to try to legislate all behavior with laws about how to conduct a courtship, laws against "excess in apparel" or "immodest laying out of theire haire".

In 1644 a tide-mill was established, in 1668 a sawmill was built and in 1684 Aaron Bennett set up a grist mill. Foreshadowing its maritime future, John Norton began building ships on land granted him near the shore in 1684. By 1700 the prosperous burghers of Manchester were able to pay Masconomet, the sagamore of the Agawam Indians, 3 pounds and 19 shillings in silver money for all rights to the lands on which the town stood. The town's economy was based on some farming and a lot of fishing for cod and mackerel, and Manchester men were known as good mariners. In 1810, 50 masters of vessels were Manchester residents.

Manchester men were patriotic as well and they served in the successful assault on Louisburg in Canada, while the town meeting raised money to support the Minute Men. The life of the town was largely maritime with a fishing fleet, fish yards and fish storage warehouses until the decay of the fishing industry freed workers for the newly expanded woodworking and cabinet making jobs.

In 1845 a new phase opened in the town when the first summer resident, poet Richard Dana, built his vacation home. Manchester quickly became a very fashionable watering place for wealthy people from the city and the town gained an increasingly important summer population. In 1868 the original Town Hall was built, while the public library was given to the town by the Hon. T. Jefferson Coolidge, a summer resident in 1886.

In modern times, Manchester has retained its reputation as a fashionable summer address, while developing a new suburban population as a handsome residential community.