In 1822, a French fur trader named Joseph Bailly settled at the area which was previously occupied by the Potawatomi Tribe.  Some of the structures from this early homestead can still be viewed by the public as a part of the Indiana Dunes National Lakeshore.

The first land owner in what is now Chesterton was Mau-Me-Nass, a Potawatomi woman who received the land through a government treaty. The ownership passed on to her father, Pier Moran, and eventually to the Thomas family, the family that platted the original downtown area into a village they named Calumet, which is now the original platted area of the Town of Chesterton.

At one point, Chesterton claimed the only train station in Porter County, causing it to become a major railroad center.  Other industries for the area were brickyards and C. O. Hillstrom's organ factory.  Other industries that impacted the town were the steel mills in the Northwest Indiana region and Indiana Port.

In the 1920s, the Indiana Dunes State Park acquired land from Chesterton, resulting in the Indiana Dunes National Lakeshore.