Villa Entre Lagos was born as a small service centre for the surrounding agricultural area and as a port for navigation on Lake Puyehue, before the roads and highways were built that today connect the settlements of the region. The major event that decided the development of the city was the installation of the Sociedad Maderera del Sur and the development of industries related to the transformation of wood. This ensured the town's status as the centre of the region and allowed the creation, in 1972, of the municipality of Puyehue, with Entre Lagos as its capital. The region thus gained its administrative autonomy from Osorno.

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