In the early 1850s, the area, which is now Carver County, was opened for settlement. The earliest settlements occurred along rivers, which were the transportation arteries of the time as well as sources of power for mills.

In the fall of 1856, the first road between Minneapolis and Watertown, Territorial Road, was built through what was then called “the Big Woods.” A portable sawmill was set up along the river to provide lumber to build the town. Because of the rich soil of the area, there was a heavy migration of farmers and settlers.

Watertown’s principal founder Isaac I. Lewis and his associates hired surveyors to plot Watertown in 1858. Because of Isaac’s financial problems, Isaac said in his journal that he “was compelled to do business in my father Caleb’s name.” Therefore, Isaac registered the Watertown land in his father Caleb’s name. Isaac I. Lewis is considered the “Father of Watertown” because of the leadership and support that he provided for the settlers.

The town site was first given the name Rapids City, but changed when it was discovered that another town site in the county had a similar name. The name Watertown was chosen because of the abundance of water in the area.

The advent of farm machinery in the 1870s and the subsequent increased level of agricultural activity in the surrounding area prompted Watertown to experience a business “boom.” Watertown’s first industry, milling, continued to be an important part of the economy with the saw mill and a grist mill operating in the mill reserved area.

The city managed to survive a financial setback by maintaining some of its businesses and attracting new ones, and on February 26, 1877, Watertown was incorporated.

The food processing industry became an important element in Watertown’s economy in the early 1900s. A canning factory was built in 1918, which was taken over in 1927 by the Minnesota Valley Canning Company and was later renamed the Green Giant company. A creamery was also built during this period.

Watertown experienced a steady growth throughout the first half of the 20th Century by acting as a retail trade and service center for the surrounding area and by retaining traditional and new small-scale businesses and industries.

With the two hospitals in Watertown, the city became known as a medical center for the Watertown community and other communities from the early 1900s through the 1980s.