The area was originally known as Otterdam until 1913 when Lambert's Bay was proclaimed and the first plots were sold.The town was named after a former British admiral, Sir Robert Lambert,who surveyed the coastline for the Royal British Navy between 1826 and 1840.

During the Anglo-Boer war British ships often visit the area and in 1901 the British gunboat, the "Sybille", ran aground at Steenboksfontein.Remainders and salvaged items are to be found in the museum at Lambert's Bay and at the "Plaaskombuis" restaurant at Steenboksfontein.

The first lobster canning factory was erected in 1918 and since then the village start developing.
The Bird Island was joined to the mainland by a breakwater in 1959 to protect the fishing fleet ithe harbour.