The town was founded in 1679 by the Governor of the Cape Colony, Simon van der Stel, who named it after himself — Stellenbosch means "(van der) Stel's forest". It is situated on the banks of the Eerste River ("First River"), so named as it was the first new river he reached and followed when Jan van Riebeeck sent him from Cape Town on an expedition over the Cape Flats to explore the territory towards what is now known as Stellenbosch. The Dutch were skilled in hydraulic engineering and they devised a system of furrows to direct water from the Eerste River in the vicinity of Thibault Street through the town along van Riebeeck Street to Mill Street where a mill was erected. The town grew so quickly that it became an independent local authority in 1682 and the seat of a magistrate with jurisdiction over 25 000 square kilometres (9,700 sq mi) in 1685.
Soon after the first settlers arrived, especially the French Huguenots, grapes were planted in the fertile valleys around Stellenbosch and soon it became the centre of the South African wine industry. The first school had been opened in 1683 but education in the town began in earnest in 1859 with the opening of a seminary for the Dutch Reformed Church and a gymnasium which known as het Stellenbossche Gymnasium was established in 1866. In 1874 some higher classes became Victoria College and then in 1918 the University of Stellenbosch. The first mens hostel to be established in Stellenbosch was Wilgenhof. In 1909 an old boy of the school, Paul Roos, captain of the first team to be called the Springboks, was invited to become the sixth rector of the school. He remained rector till 1940. On his retirement the school's name was changed to Paul Roos Gymnasium.
In the early days of the Second Boer War (1899-1902) Stellenbosch was one of the British military bases, and was used as a 'remount' camp; and in consequence of officers who had not distinguished themselves at the front being sent back to it, the expression 'to be Stellenbosched' came into use; so much so, that in similar cases officers were spoken of as 'Stellenbosched' even if they were sent to some other place.