Watermans Bay, originally Waterman Bay, was named after Alfred Waterman, who built the first house in the area.
The suburb of Watermans Bay was originally known as Waterman Bay and named after Alfred Waterman, a fisherman who built the first house in the area (called 'Zephyr') in 1908. The bay was a well-known fishing spot. The Postal District of Watermans Bay was approved in 1954 and in 1962 the name "Watermans Bay" was shortened to "Waterman".
Local residents requested that the named be changed back to Watermans Bay in 1964 however the request was rejected because it did not comply with the State Government policy at that time. In 2003 the Trigg, North Beach and Waterman Community Association conducted a survey of residents to determine the level of community support for a change of name. Of the 564 households surveyed, 502 responses were received with 491 in support and only 11 households objecting to the proposal. In November 2003 the State Government's Geographic Names Committee finally agreed to a City of Stirling proposal to change the name of the suburb from Waterman back to Watermans Bay.
Watermans Bay was originally part of the estate that the Hamersley family acquired in 1837. The area was subdivided as the Mt Flora Estates in 1918; however initial development was largely limited to holiday shacks. The pace of growth in Watermans Bay increased after World War II, and by the late 1960s the area had reached its development potential. In recognition of this growth, the townsite was gazetted in 1964. Some redevelopment began in the 1970s, with new homes replacing holiday shacks. Many of the street names in Watermans Bay honour members of the Hamersley family including Ethel, Margaret, Mary and Ada.
Single detached houses predominate in Watermans Bay, though there are some duplexes and unit developments centring on Elsie Street. Some of these were constructed in the late 1970s when replacement of old housing stock commenced.
Residential styles in Watermans Bay range from timber and fibro workers' homes to modern two storey dwellings constructed of brick. Average lot sizes are around 1,012 square metres, though there are several larger blocks along the foreshore.
Star Swamp Reserve is of regional significance and occupies a large portion of Watermans Bay. This area provides the local and wider community with a unique recreational area, containing a diverse range of indigenous flora and fauna. The Star Swamp bushland was declared an 'A' Class Reserve by the State Government in 1987 and covers an area of about 96 hectares.
Watermans Bay also contains a number of small parks and recreation areas, including Watermans Beach and Laurie Strutt Reserve. The latter contains the Water Tower Museum, which is located at the highest point of the suburb and was built in 1940 to provide scheme water to the surrounding areas. After the tank became redundant it was converted to a museum and lookout in 1986 and now details the region's history.
Commercial development in Watermans Bay is limited to a small retail outlet on West Coast Drive that provides convenience goods for local residents. The suburb also contains the Euroka Village, which cares for senior citizens.