Shawangunk was first settled by Europeans around 1670. The region was organized as a precinct in 1743, and became the Town of Shawangunk in 1788.

The name is a Dutch transliteration of the indigenous Munsee Lenape "Scha-WAN-gunk." The Lenape linguist Raymond Whritenour reports that, "Schawan" is an inanimate intransitive verb meaning 'it is smoky air' or 'there is smoky air.' Its noun-like participle is "schawank," meaning that which is smoky air.' Adding the locative suffix gives us "schawangunk" ('in that which is smoky air' or, more simply, 'in the smoky air'). Like the nearby Catskill Mountains, which are referred to as the "Hidden Mountains" at Olana, the Shawangunk area can be noted for the heavy humidity and atmosphere caused by the mountain ridge running southwest to northeast partially blocking the prevailing west to east wind.