The town's name was given by French military forces who founded the Fortress of Louisbourg and its fortified seaport on the southwest part of the harbour, in honour of Louis XV. The French fortress was demolished after its final capture in 1758 and the site was abandoned by British forces in 1768.
Subsequent English settlers built a small fishing village across the harbour from the abandoned site of the fortress. The village grew slowly with additional Loyalists settlers in the 1780s. The harbour grew more accessible with the construction of the second Louisbourg Lighthouse in 1842 on the site of the original French lighthouse destroyed in 1758. A railway first reached Louisbourg in 1877, but it was poorly built and abandoned after a forest fire. However the arrival of Sydney and Louisburg Railway in 1894 brought heavy volumes of winter coal exports to Louisbourg Harbour's ice-free waters as a winter coal port. The harbour was used by the Canadian government ship Montmagny in 1912 to land bodies from the sinking of the RMS Titanic.
Incorporated in 1901, the Town of Louisbourg was disincorporated when all municipal units in Cape Breton County were merged into a single tier regional municipality in 1995.