Settlement in Seyðisfjörður traces back to the early period of settlement in Iceland. The first settler was Bjólfur, who occupied the entire fjord. The burned down ruin of a "staf" church at Þórunnarstaðir has been carbon-dated to the 10th century, with earlier graves exhumed dating back to the 8th century.
Town settlement in the Seyðisfjörður area started in 1848. The town was settled by Norwegian fishermen. These settlers also built some of the existing wooden buildings in the village. Another now deserted settlement nearby in the fjord, Vestddalseyri was the site for the world's first modern industrialized whaling station. It was established in 1864 by renowned American whaler Thomas Welcome Roys and run by him and his workforce until 1866. Both settlements served primarily as fishing and trading posts. The first telegraph cable connecting Iceland to Europe was shored in Seyðisfjörður in 1906, making it a hub for international telecommunications well past the middle of last century. In 1913 a dam was made in the main river, harnessing power for the country's first high voltage AC power plant together with a distribution network for street lighting and home use, also the first of its kind in Iceland. Seyðisfjörður was used as a base for British/American forces during World War II and remnants of this activity is visible through the fjord, including a landing strip no longer in use and an oil ship El Grillo that was bombed and sunk. It remains a divers wreck at the bottom of the fjord.
With the recent demise of the local fish-processing plant the village has shifted its economy to tourism. It still remains a significant fishing port on the east coast of Iceland with harbors, ship construction facilities and a slip
