Damariscotta is an extreme corruption of the Algonquian word "Madamescontee", meaning "place of an abundance of alewives", which are small, salty fish that spawn in Damariscotta Lake.
The running of the alewives is celebrated each spring with the Alewives Festival that takes place in Damariscotta Mills, a village located north of Damariscotta in Newcastle and Nobleboro.
The main village is located at the lower falls and head of navigation on the Damariscotta River. Early industries included two sawmills, a match factory, and a tannery. Along the river were established several brickyards, which supplied much of the brick used to build Boston's Back Bay neighborhood. But shipbuilding in particular brought Damariscotta wealth in the 1800s, when clipper ships were launched at the town's shipyards. During that time, many fine examples of Federal, Greek Revival, and Italianate style architecture were erected, giving the old seaport a considerable charm which each summer attracts throngs of tourists.