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Muskoka is a summer destination for Toronto residents and was the #1 most searched Canadian destination for vacation rentals in 2017. It was ranked #1 for Best Trips of 2011 by National Geographic, and was a finalist for the same distinction in 2012. The municipality's name derives from a First Nations chief of the 1850s. Lake Muskoka was then the hunting grounds of a troop led by Chief Yellowhead or Mesqua Ukie or Musquakie. He was revered by the government, who built a home for him in Orillia where he lived until his death at age 95. Muskoka has 60,000 permanent residents, but an additional 100,000 seasonal property owners spend their summers there, making it a major summer colony. Due to the region's popularity and high property costs, hundreds of Muskoka properties are available for short term rental through online platforms. Martin Short, Harry Hamlin, Cindy Crawford, and Goldie Hawn and Kurt Russell.

Until the late 1760s, the European presence in the region was largely limited to seasonal fur trappers, but no significant trading settlements were established. Following the American War of Independence, the British North America government feared invasion from its new neighbour to the south. The authorities began exploring the region, hoping to develop a settled population and find travel lanes between Lake Ontario and Georgian Bay. The first European known to have caught even a glimpse of Muskoka or Haliburton was a French youth, usually identified as Étienne Brûlé, and the year was in 1610 or 1611. In 1826, Lieutenant Henry Briscoe became the first European man known to have crossed the middle of Muskoka. The explorer David Thompson drew the first maps of the area in 1837 and possibly camped near present day Beaumaris. Canada experienced heavy immigration from Europe in the 19th century, and Muskoka was no different. Large numbers of settlers from the United Kingdom, and to a lesser extent, Germany began to arrive. As the land south of the Severn was settled, the government planned to open the Muskoka region further north to settlement. Logging licences were issued in 1866 which opened Monck Township to logging. The lumber industry expanded rapidly, denuding huge tracts of the area. Road and water transportation was developed and used later to facilitate town settlement. Road transportation took the form of the Muskoka Colonization Road, begun in 1858 and reaching Bracebridge in 1861. The road was roughly cut through from the woods and was of corduroy construction. Logs were placed perpendicular to the route of travel to keep carriages from sinking in the mud and swamps. This made for extremely rugged travel. The railroad pushed north to support the industry, reaching Gravenhurst in 1875 and Bracebridge in 1885. The lumbering industry spawned a number of ancillary developments, with settlements springing up to supply the workers. Bracebridge (formerly North Falls) saw some leather tanning businesses develop. Tanners used the bark from lumber to tan hides, turning what would otherwise be a waste product to effective use.

The passage of the Free Grants and Homestead Act of 1868, opened the era of widespread settlement to Muskoka. Settlers could receive free land if they agreed to clear the land, have at least under cultivation, and build a 16x20 ft, or house. Settlers under the Homestead Act, however, found the going hard. Clearing 15 acres of dense forest is a huge task. Once the land was clear, the settlers had to attack Muskoka's ubiquitous rocks, which also had to be cleared. Consisting largely of a dense clay, the soil in the region turned out to be poorly suited to farming. As news of the difficult conditions spread back to the south, development in Muskoka began to falter, but development of the steamship revived industry. In a time when the railroads had not yet arrived and road travel was notoriously unreliable and uncomfortable, the transportation king was the steamship. Once a land connection was made to the southern part of the lake in Gravenhurst, the logging companies could harvest trees along the entire lakefront with relative ease. Steamships gave them the way to ship the harvest back to the sawmills in Gravenhurst. + Historic townships of the District of MuskokaTownshipDescriptionBaxterNamed for the Honourable Jacob Baxter, MPP for Haldimand County, Ontario from 1887 to 1898 and Speaker of the Ontario Legislature from 1887 to 1891. BrunelNamed for noted civil engineer Isambard Kingdom Brunel, Engineer in Chief to the Great Western Railway of England. Known in Canada for constructing the steamship Great Western. CardwellNamed for Viscount Cardwell, Secretary of State for the Colonies from 1864 to 1866. ChaffeyNamed for a brother in law of Hon. Stephen Richards, Benjamin Chaffey, a Brockville contractor who helped build the St. Lawrence canals. DraperNamed for judge William Henry Draper, Solicitor General of Upper Canada in 1837 and Attorney General of Upper Canada in 1840. FranklinNamed for Arctic explorer Admiral Sir John Franklin. FreemanNamed for John Bailey Freeman, MPP for the North riding of Norfolk County from 1879 to 1890. GibsonNamed for Thomas Gibson, MPP for Huron from 1867 to 1898. MacaulayNamed for Chief Justice of the Common Pleas Sir James Buchanan Macaulay (1793–1859), veteran of the War of 1812. McLeanNamed for Archibald McLean (1791–1865), a veteran of the War of 1812, he became Chief Justice of Upper Canada. MedoraNamed for Mrs. Medora Cameron, wife of a Toronto lawyer. She was also a niece of Hon. Stephen Richards, Commissioner of Crown Lands, hence the honour she received. MonckNamed for Viscount Monck, Lord of the Treasury in the Palmerston government in the United Kingdom from 1855 to 1857, and Governor General of British North America from 1861 to 1868. MorrisonNamed for Angus Morrison who represented the North riding of Simcoe County from 1854 to 1863. Morrison was also a director of the old Northern Railway of Canada, Muskoka's pioneer railway, the terminus of which was Gravenhurst. Morrison was also Mayor of Toronto from 1876 to 1878. MuskokaThe township, district and lake are named for Musquakie, one of the principal Chiefs of the Chippawa Nation. In 1815 he signed the treaty under which the Indian title to a vast territory was surrendered to the Crown. The name means "Red Ground". OakleyNamed for one (which one is uncertain) of 13 villages of the name in Great Britain, 12 of which are in England, one in Scotland. RidoutNamed for the Ridout family, a very prominent Toronto family. They came from Sherborne in Dorsetshire, England, hence the name of Sherborne Township in Haliburton County, which adjoined Ridout Township on the east and hence also Dorset, a village in the township. Thomas Ridout was Surveyor General of Upper Canada. RydeNamed for the town of Ryde on the Isle of Wight. SinclairNamed for Donald Sinclair, MPP for the North Riding of Bruce County from 1867 to 1883. StephensonNamed for Robert Stephenson, son of George Stephenson of locomotive fame, Robert Stephenson designed the Victoria Tubular Bridge at Montreal, then the greatest Canadian bridge. StistedNamed for Major General Henry William Stisted, Lieutenant Governor of Ontario from Confederation, July 1, 1867 to 1868. WattNamed for James Watt of steam engine fame. WoodNamed for Edmund Burke Wood, Provincial Treasurer in the John Sandfield Macdonald Government. In 1874, he was appointed Chief Justice of Manitoba.

Sometimes called the Father of Muskoka, Alexander Cockburn began placing steamers on the lake system. Starting with his steamship the Wenonah, Ojibwa for "first daughter", in 1866 Cockburn pressed the government to open the entire Muskoka lake system to navigation. He urged installing locks in Port Carling and opening a cut between Lake Rosseau and Lake Joseph at Port Sanfield. The government was eager to reinforce development in light of the faltering agricultural plan, and built the big locks in Port Carling in 1871. Cockburn's steamers had access to the entire lake system. Through the years he added more ships; when he died in 1905, his Muskoka Navigation Company was the largest of its kind in Canada. Taking the Northern Railway to Lake Simcoe, they took the steamer Emily May up the lake to Orillia, and rowed across Lake Couchiching. They walked up the Colonization Road to Gravenhurst, where they vacationed. They liked what they saw and repeated the journey every year, bringing friends and relatives. These early tourist pioneers increased demand for transport services in the region. People were drawn by the fishing, natural environment, and an air free of ragweed, providing relief for hay fever sufferers. Early tourists built camps, but were joined by others desiring better accommodations. Farmers who were barely scratching a living from the rocky soil soon found demand for overnight accommodations arriving on their doorsteps. Some made the switch quickly and converted to boarding houses and hotels. The first wilderness hotel, called Rosseau House, was built at the head of Lake Rosseau in 1870. It was owned by New Yorker William H. Pratt. The idea caught on and the number of tourists increased, establishing the tourist industry as the up and coming money earner in the 1880s. The steamship era gave rise to the area's great hotels: Rosseau, Royal Muskoka, Windermere, Clevelands House, Beaumaris, and many more. When the railroad reached Gravenhurst in 1875, the area grew rapidly. Travel from Toronto, Pittsburgh, and New York City became less a matter of endurance than expenditure. Trains regularly made the run from Toronto to Gravenhurst, where travellers and their luggage were transferred to the great steamers of the Muskoka Navigation Co, such as the Sagamo. Making regular stops up the lakes, including at Bracebridge, Beaumaris, and Port Carling, tourists could transfer to smaller ships, such as the Islander. These could reach smaller ports. Improving transportation links opened smaller or more remote upper Muskoka lakes (Fairy, Vernon, Mary, Peninsula and Lake of Bays) to tourism around the turn of the 20th century, with steamers out of Huntsville servicing hotels like Deerhurst on Peninsula Lake. The Portage Railway between Peninsula Lake and Lake of Bays enabled comparatively easy access to the latter, resulting in a blossoming of tourism there, with 21 hotels eventually springing up, among them notably the Wawa and Britannia hotels and perhaps culminating in the Bigwin Inn. The hotels became the centres of wealthy vacationers' lives, and families conducted extended stays that could stretch for weeks or months in the summer. As families became seasonally established, they began building cottages near the hotels; at first simple affairs replicating the rustic environment of the early camps. Later they built grander homes, including in some cases, housing for significant domestic staff. Initially cottagers relied on rowboats and canoes for daily transport and would sometimes row substantial distances. In the era of the steam and gasoline launch, tourists relied less on muscle power and more on motors. With the boats, the wealthier summer people built boathouses, often elaborate structures in their own right, in many cases designed with the look and feel of the main "cottage". In 1887, the Nipissing II was built in Glasgow, Scotland and assembled in Gravenhurst, Ontario. Originally a side paddlewheel steamer, the Nipissing II plied the lakes of Muskoka for decades before decommission in 1914. In 1924, the vessel was outfitted with twin propeller engines and in 1925 was relaunched with an Ojibwe name, Segwun, meaning "springtime." Royal Mail Ship Segwun is still in operation today in Gravenhurst, Ontario, functioning as a pleasure cruise vessel and still delivering mail.

World War I caused a significant dip in the tourist activity for the area and hence the economy. After the war, however, significant advances in the automobile brought demand for improved (paved) roads. These two developments, motorboats and private cars, brought greater overall development of the area; they also stimulated the spread of development around the lakes, as people no longer needed to be near major landings. Freed from the ports of call of the steamships, people built cottages farther afield. Demand began dropping for passenger billets on the steamship lines. Meanwhile, demand increased for air transportation. The earliest runways of Muskoka Airport were laid out in 1933. The airport has been intermittently upgraded. It was used strategically during World War II as a training field for the Norwegian Air Force after the Nazi occupation of Norway. The demands of World War II slowed residential development in this area. Wartime shortages kept many Americans at home and many Canadians were engaged in war activities. Postwar prosperity brought another boom based around the availability of the automobile, improved roads, and the newly affordable fiberglass boat. Suddenly owning a summer cottage became possible not only for the adventurous or the wealthy, but for many in the middle class. They traveled by private automobiles, and the steamship companies were forced to retire their ships one by one, until the last sailing in the late 1950s.

As a census division in the 2021 Census of Population conducted by Statistics Canada, the District Municipality of Muskoka had a population of 66674 living in 28571 of its 47560 total private dwellings, a change of from its 2016 population of 60614. With a land area of , it had a population density of in 2021.