The area around Port Phillip and the Yarra Valley  was the home of the Kulin nation, five different language groups of Indigenous Australians, whose ancestors had lived in the area for between 31,000 to 40,000 years.

The area of Melbourne was first explored by Europeans in 1803. In 1835, rival groups from Tasmania settled and named the location Port Phillip. John Batman and John Pascoe Fawkner are known as its founders. Batman bought around 240,000 hectares of land from the local aboriginal tribes and built a settlement on the Northern banks of the Yarra River. In October 1835, John Pascoe Fawkner and a group of Tasmanian settlers joined the effort.

As opposed to other settlements in Southeastern Australia, Melbourne was never a penal colony. From the beginning, it was planned as a residential area with broad streets and ample parks. In 1837, the city received its name in honor of the then-prime minister of Great Britain, William Lamb, Second Viscount Melbourne. Around 1840, already more than 10,000 people lived in the Melbourne region. 

Melbourne was separated from New South Wales and became the capital of the newly founded colony of Victoria. Its biggest boom began in the early 1850s, when gold was discovered in Victoria (especially around Bendigo and Ballarat). At this time, the city developed into a center for trade and business for the influx of gold diggers. At the end of the 19th century, the city turned into an important train hub, its harbour was expanded, and important industries took hold. After the founding of the Australian Federation in 1901, Melbourne was the temporary venue of the government. In 1913, Canberra became the nation's new capital but the government did not move until 1927. Melbourne was also the location for the 1956 Olympic Games, the 'Friendly Games'.