The Toodyay district was opened for settlement in 1836 and the first Toodyay townsite was located roughly four kilometres from the present town on the Avon River.
Following the arrival of convicts to the Swan River Colony in 1850 a convict depot was established upstream of the town of Toodyay. As the town was subject to flooding it was decided in 1860 that it should be relocated to the convict depot where a pensioner guard village had been established. The place was named Newcastle and it grew into a thriving town.
Until the 1870s the area was governed from Perth with, on occasions, local committees advising on roads. The Municipal Act, passed in 1871 gave local councils jurisdiction over roads, drains, public buildings, boundaries and sanitation.
In 1877 the Newcastle Council was formed to administer the affairs of the town area. Ten years later in 1887 the Toodyay Road Board was formed and concerned itself with roads and problems of those residing outside the town area. In 1899 the Municipal Council Chambers were erected (front portion of the present Toodyay Memorial Hall) and meetings of the Council and Road Board were conducted there on separate days.
In 1901 there were 339 residents in the Newcastle Municipal area and 2964 in the Toodyay Road Board area. In 1910 the town’s name was changed to Toodyay because of confusion with the town of Newcastle in New South Wales. In December 1911 the Municipal Council was absorbed by the Toodyay Road Board.
The Toodyay Road Board met in the Mechanics’ Institute Building (now the Shire Library) in Stirling Terrace until 1959. The Toodyay Road Board then met in the present Shire Administration Centre that was formerly the Court House.
The Toodyay Road District became the Shire of Toodyay on 1 July 1961 following a change in status for all road districts to become shires. The Road Board changed its name to the Toodyay Shire Council on that date.