In 1804, George William Evans discovered the Warragamba River, penetrating upstream to the present site of Warragamba Dam

Originally constructed as a workers' settlement during the construction of Warragamba Dam, Sydney's primary water source, in the 1940s the modern town of Warragamba remains on the same site adjacent the dam. The town was built from scratch, including homes, shops, schools and other facilities.

On completion of the dam being built many workers bought their homes from the Water Board and stayed on in the township. Warragamba Public School celebrated its fiftieth anniversary in September 1998 despite the fact it was to be demolished after the completion of Warragamba Dam in the 1960s.

Warragamba is unusual for an Australian town, as the streets do not have typical names, but are numbered (such as First Street and Eighteenth Street).

Ongoing dam works (including recent safety improvements) have severely reduced weekend visitors. The town also lost 30 homes and businesses in the Warragamba Bushfire of 2001. It was home to the Warragamba African Lion Safari until 1991.