Together with Port Royal, the Annapolis Royal Region comprises the oldest continuous European settlement north of St. Augustine, Florida and was settled first by Samuel de Champlain and Pierre Dugua, Sieur de Monts in 1605. The area was subject to frequent capture by the British or its New England colonists only to be restored each time to French control by subsequent recapture or treaty stipulations. The area remained in French hands throughout most of the 17th century.

Under the Treaty of Utrecht in 1713, present-day peninsula Nova Scotia was granted to the British. The treaty had transferred the French colony of Acadia, however the vague boundary definitions saw only the peninsula part of Nova Scotia granted to Britain.

In 1710, the current site of Annapolis Royal was occupied by British forces after the former capital of Acadia at Port Royal was abandoned. The name honours Queen Anne (1665-1714) and is formed through a mix of the former French name Port-Royal and combining the queen's name with that of 'polis', the Greek word for city.

Annapolis Royal served as the first capital of the Colony of Nova Scotia from 1710 until the founding of Halifax in 1749. Fort Anne was built by the British Army to defend the colonial capital from seaward attack. Today, much of the original earthen embankments are preserved for tours by the public, as well as some original buildings to the military facility.

Incorporation as a town under the provincial municipalities act took place in 1893. The Annapolis Basin, Annapolis River and the Annapolis Valley all take their name from the town.