The Estero River flows into the eponymous bay. Estero received its name from the Spanish explorers who sailed the Estero Bay, the word meaning "estuary" in Spanish. Estero was founded in 1904 by the Koreshans, a religious sect that numbered nearly 10,000 members at the time. This group contributed to the growth of the Estero community through art, music, theater and business. In 1961, they bequeathed their property to the State of Florida; these original buildings can still be visited today at the Koreshan Historic Site and the remains of their "New Jerusalem" can be seen on the banks of the Estero River.

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