Greenwood Lake was originally called "Quampium" by the Munsee Indians who lived in a village situated almost exactly where the Village of Greenwood Lake is today.  The first Europeans settled the area as a farming community, centered in Dutch Hollow, in the 1700s.  The lake then took on the English name of Long Pond, and eventually, "Greenwood Lake".  Some of the farms at the head of the lake were purchased by the Morris Canal and Banking Company in 1837, and portions of them were inundated when a dam was built that same year in New Jersey, greatly increasing the size of the lake to its current dimensions.  The enlarged lake attracted tourists, and a grand hotel owned by Theron Felter was operating on the north shore by at least 1851.

The Montclair and Greenwood Lake Railroad arrived in 1875, which spurred an explosion of hotel development around Greenwood Lake.  The train station and steamboat docks which served the lake were located at the state line in Sterling Forest.  The Greenwood Lake Transportation Company operated the steamboats "Arlington" and "Milford", and the magnificent double-decked "Montclair", a beautiful side-wheeler built in 1876 and which reportedly carried from 200 to 400 passengers.

The development of the village itself dates to 1856, when most of the available land was purchased by Solomon Caldwell, who divided the land for sale as "hotels, villa sites and town lots."  Subsequent plot plans suggested renaming the community the "Town of Avington" in 1884, and "Montelac Park" in 1890, but it remained Greenwood Lake, becoming incorporated as a village in 1924.  Greenwood Lake came early into the rocket age on February 23, 1936, when rocket scientist Willey Ley collaborated with others to conduct the "First American Rocket Mail Flight", carrying 6,149 pieces of mail across the state line.  In the ensuing years many famous people, such as Babe Ruth and Greta Garbo, regularly visited the resort.  Today, Greenwood Lake still attracts visitors who come to boat, swim, ice skate, fish, or simply enjoy the spectacular scenery.