The area was settled in 1783 by the United Empire Loyalists under the leadership of Sir Robert Digby.

The town became an important regional transportation centre in the 1890s with the arrival of the Dominion Atlantic Railway. Trains connected with a series of steamships such as the City of Monticello and later the SS Princess Helene.

Tourism has played an important role in Digby during the 20th century following the construction of a large resort on the town's outskirts named The Digby Pines. Built in 1905 and then purchased in 1917 by the Dominion Atlantic Railway, the resort provided a focal point to the local tourism industry. Continuously expanded, it was bought by the Government of Nova Scotia after the Dominion Atlantic sold its hotels.

Fishing has been an essential economic activity since the town's settlement. Digby's schooner fishery reached its peak in the early 1900s, documented by the famous Canadian historian and photographer Frederick William Wallace. In later years, trawlers, especially those harvesting scallops became the mainstay.

Digby's economy is still based largely on the fishing and tourism industries. The annual Scallop Days Festival brings the two industries together to showcase the town's history and heritage to the tourists. The festival offers a variety of themed activities for all ages, including scallop shucking contests, a parade, and an exhibition of local artists. Another attraction for the tourism industry is the annual Wharf Rat Rally which attracts mortorcycle enthusiasts from afar to enjoy a weekend of events. The area is also widely known for the enormous Bay of Fundy tides that sweep the coastline boasting some of the highest tides in the world. The town's history is preserved and interpeted by the Admiral Digby Museum, located in a historic home facing the harbour.

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