Hafnarfjörður takes its name (meaning Harbour-fjord) from the area's excellent natural harbour. The town is first named in the medieval "Book of Settlements," and the earliest reports of voyages to Hafnarfjörður date from the end of the 14th century. Englishmen began trading in Hafnarfjörður in the 15th century, but German merchants followed in their wake and eventually drove the English out. After that, Hanseatic traders prevailed in town until 1602, based at Hvaleyri. At this point, the Danish monarchy established a Danish trade monopoly in Iceland which lasted until late in the 18th century. During this period, Hafnarfjörður was the nation's busiest trade centre.

In 1793 Bjarni Sívertsen settled here and became influential in local business and international trade, setting up a major commercial fishing operation. His enterprise and initiative signalled the start of impressive commerce in the town. Ever since, he has been called "the father of Hafnarfjörður" and nicknamed "Sir Bjarni." Around 1870 dramatic changes took place in Icelandic fishing. Residents followed the growing trend in Iceland of using decked boats rather than row-boats. This led to even more employment and rapid growth, and Hafnarfjörður attained official municipal status in 1908.

After World War II, more advanced trawlers and numerous motorised ships were added to the fleet. The town's first stern trawler appeared in 1973. Today, Hafnarfjörður is one of the nation's largest fishing centres and the site of Iceland's first fish wholesalers' auction market. Through the years, Hafnarfjörður's dynamic local economy has been strongly linked to fishing, although freight transport has recently become the major harbour activity. And now, the town is Iceland's second-ranked import and export harbour.