The first Europeans arrived in the area in 1760, and the farm Melkhoutkraal (literally translating from Afrikaans as ‘milk wood kraal’) was established on the eastern shore of the Knysna Lagoon. Stephanus Terblans, the first European farmer to settle in the area, was given a loan permit to farm here in 1770.
Upon moving to Knysna George Rex, a British-born entrepreneur credited as being the founder of Knysna, acquired the loan rights to Melkhoutkraal in 1804 and later, in 1816, to the farm Welbedacht, which he renamed Eastford. He gave 80 acres (32 ha) of Eastford to the Colonial Government, on which the Royal Navy established the township of Melville. Rex’s properties were sold when he died in 1839.
In April 1817, the transport brig Emu, belonging to the Cape Town Dockyard, was the first European vessel to enter the Knysna heads. She struck a rock, now known as Emu Rock, and was holed. Her crew ran Emu ashore to prevent her sinking. In late April HMS Podargus arrived to render assistance. After surveying the area, Podargus sailed safely into the Knysna and retrieved Emu’s cargo.
The next major settler in Knysna was Captain Thomas Henry Duthie, who married Caroline, George Rex’s daughter, and bought a portion of the Uitzigt farm from his father-in-law which Rex had named Belvidere. The construction of a small Norman-style church was commissioned by Duthie on his property, and was consecrated in 1855. The settlement’s population grew slowly, and Englishmen such as Henry Barrington and Lt. Col. John Sutherland, who established the settlement of Newhaven on a portion of purchased land, settled in the area. At the time, Knysna was a field cornetcy of Plettenberg Bay within the Magisterial Division of George. In 1858, Knysna became a separate Magisterial Division, new stores and accommodation facilities were opened, and Knysna became the new commercial centre of the region.
On their way to New Zealand, the Thesen family who were travelling from Norway fancied the little hamlet of Knysna so much that they decided to stay, bringing with them their knowledge of commerce and sailing. Soon, timber was being exported to the Cape from the vast areas of forest surrounding Knysna, and a steam sawmill and small shipyard were established. Later, these were relocated to Paarden Island, later known as Thesen’s Island.