In 1788, Charles Boyer of the North West Company (NWC) traveled up the Peace River and established a trading post near the mouth of the Boyer River. This post laid the groundwork for European settlement in northwestern Alberta. Famous explorer Alexander Mackenzie stopped at Boyer's Post in 1792 during his historic journey to the Pacific Ocean. He noted the rich soil and recorded early attempts at growing garden vegetables such as turnips, carrots, and potatoes.

The Hudson’s Bay Company (HBC) established competing posts nearby. In 1821, following intense and sometimes violent competition across Western Canada, the NWC merged into the Hudson's Bay Company. The post at Fort Vermilion became a vital HBC supply center and provisioning hub for traders venturing further west across the Rocky Mountains.

As the fur trade peaked and gradually shifted in character during the late 19th century, Fort Vermilion transitioned toward agriculture. Recognizing the microclimate and fertile soil of the Peace River valley, early settlers and the HBC began farming. An Experimental Farm was established to research crop varieties suited for northern latitudes. Demonstrating that grains, produce, and livestock could thrive at 58° N latitude helped prove the viability of northern agriculture. The Post office opened on September 15, 1911.

Catholic and Anglican missions, schools, and churches were established in the 19th and early 20th centuries, supporting a growing community composed of First Nations, Métis, French-Canadian, and British families. For over a century, access to Fort Vermilion depended almost entirely on the Peace River, using canoes, York boats, and river steamboats (such as the S.S. Peace River and D.A. Thomas). In winter, travel relied on ice bridges across the frozen river.

The opening of the Mackenzie Highway and rail lines into High Level in the 1960s modernized regional trade. In 1974, the Fort Vermilion Bridge across the Peace River opened, replacing ferries and seasonal ice bridges, permanently linking the hamlet to Alberta's highway network.