There was a trading settlement at Pärnu before the German crusaders arrived, but the place entered recorded history in 1234 when the Pärnu River was fixed as the border between the territories of the Ösel-Wiek bishop (west and north) and the Livonian knights (east and south). The town, joined by rivers to Viljandi, Tartu and Lake Peipsi, became the Hanseatic port of Pernau in the 14th century (sinking water levels have since cut this link).

Pernau/Pärnu had a population of German merchants from Lübeck till at least the 18th century. It withstood wars, fires, plagues, and switches between German, Polish, Swedish and Russian rule, and prospered in the 17th century under the Swedes until its trade was devastated by Europe-wide blockades during the Napoleonic wars.

From 1838 it gradually became a popular resort, with mud baths as well as the beach proving a draw. Only the resort area was spared severe damage in 1944 as the Soviets drove out the Nazis, but many parts of the Old Town have since been restored.