The city was originally populated by German colonists, who made an important contribution to the development of the area. It was Bernardo Phillipi who got the colonization started with his discovery of the lake. Later, Vicente Pérez Rosales introduced new groups of German colonists to this beautiful place.

It was founded in 1854 and declared a town October de 1897, on account its development in the years since colonization. It was the port for the transport of goods to Puerto Montt from the farms and businesses around the lake.

On December 30th, 1927 the government created the Municipality of Puerto Varas. It is known as the City of Roses.