The town of Charmouth was a deliberate foundation by the Cistercian abbot of Forde at the very end of the 13th or early 14th century, which makes it very unusual, as Cistercian houses tended not to establish new towns on their lands and only a very small number are known in England. The town was founded at the end of the great period of English town foundation and like many of these late towns, it was not a success and does not appear to have contributed substantially to the finances of Forde Abbey.
Little is known about its subsequent history. There is some indication of prosperity in the 16th century, but the town does not appear to have expanded beyond its original limits. It was largely dependent on agriculture and fishing and remained a small town or large village. In the early 19th century Charmouth became a minor seaside resort, which encouraged the building of a number of villas and saw a modest increase in its size. This marked the beginning of its dependence on tourism as its major source of income, but it declined in the later 19th century.
The period after the First World War saw increasing suburban development, which expanded markedly after the Second World War. Although Charmouth trebled in size during the 20th century, it remains a large village rather than a town.