A hamlet, Melville, appeared on the lakeshore in 1825, and was followed by another, Newhaven, in 1846. Knysna town, a 1882 amalgamation of these hamlets, was named after the Knysna River.
Knysna's port could provide shelter for up to 50 ships, and the region's abundant timber was exported from this bay as early as 1787. Landowner George Rex, who landed at the Cape in 1796, played a significant role in the town's early development and is considered the town's founder. Being a difficult port to enter, a harbour pilot was employed to assist large vessels. One of the better-known pilots was John Benn, originally a shipwright from Mossel Bay, appointed as pilot in 1868 and whose name is borne by a double-deck pleasure cruiser currently operating as a tourist attraction on the Knysna lagoon. The port was officially closed in 1954.
The Norwegian family, Thesen, played a considerable role in the development of Knysna from 1869 onwards. Arndt Leonard Thesen(1816–1875) and his son Charles Wilhelm Thesen in particular, founded and expanded the family timber and shipping business. Charles Thesen was mayor of Knysna for a number of terms.
From 1907 to 1949 the Knysna forest railway was used to haul timber from the inland forests to the harbour of Knysna
