The port was named by Captain Cook when he passed on 11 May 1770, honouring Sir Philip Stephens, who was Secretary to the Admiralty. Stephens was a personal friend of Cook and had recommended him for command of the voyage. It seems Cook's initial choice had actually been Point Keppel and Keppel Bay, but instead he used Keppel Bay later.
The first ship to enter the port was the Salamander, a ship of the Third Fleet that later gave the suburb of Salamander Bay its name, in 1791. In that same year escaped convicts, then known as 'bolters', discovered coal in the area.
In 1795 the crew of the HMS Providence discovered a group of escaped convicts, living with the Worimi people. Port Stephens became a popular haven for escaped convicts and so in 1820 a garrison of soldiers was established at what is now known as Soldiers Point.
The 63 tonnes (62 long tons) cutter Lambton, commanded by Captain James Corlette, began shipping timber and wool out of the port in 1816. The suburb of Corlette was named after the captain.
Port Stephens has rather poor soil for the most part, and has limited agricultural potential. For this reason, no large towns developed there historically and it was never developed as a significant port. The major city and port of Newcastle developed at the mouth of the Hunter River, about 45 km (28 mi) south-west of Port Stephens.
Despite this, in 1920 there was a push for Port Stephens to be the capital city of a new state in a proposal originating from the country newspaper The Daily Observer. The proposal was the Observer's editor Victor Charles Thompson's idea in response to continuing rural Australian antipathy at the Sydney - centralised funding and governance that many rural newspapers claimed had neglected to aid rural Australian towns.
During World War II, the remoteness and lack of any significant civilian population led to the Royal Australian Navy establishing HMAS Assault, an amphibious landing training
