Major Francis Grose sent workmen to the area in 1793 to clear the bush and plant corn and wheat. He named the area Peters-Ham or Petersham after his native village in Surrey, England.[citation needed] Petersham remained an agricultural area, winning awards for some of the best crops and stock in the colony in 1803.[citation needed] Kangaroo hunting was also popular in the area. The name was also used for the surrounding parish.

Robert Wardell (1793–1834) purchased land from many grantees in the district and in 1831 his estate eventually stretched 2,000 acres (8.1 km2) from Petersham to the Cooks River. Following his murder by escaped convicts in 1834, the estate was subdivided. The train line from Sydney to Parramatta opened in 1855 and trains stopped here from 1857. A platform was built in 1863. The original Petersham post office became Annandale in 1855. Another post office opened as Norwood in May 1860 and was moved to Petersham station in 1870. The first public school opened in 1878.

Petersham municipality was incorporated in 1872. The local council merged with Marrickville and St Peters in 1948 to form the Municipality of Marrickville. In 1916, the Boys' section of Fort Street High School moved to Petersham from Observatory Hill, followed by the Girls' section in 1975.