Walpole lies very close to the northern point of the 100-hectare (250-acre) Walpole Inlet, from which it takes its name.
The inlet in turn is named for the Walpole River, discovered in 1831 by Captain Thomas Bannister, and named by Governor Stirling for Captain W. Walpole, with whom he had served aboard HMS Warspite in 1808.
Land in the Walpole area was reserved for a national park in 1910, and the area subsequently became a popular holiday destination. Major development began to occur in the 1930s as part of the land settlement scheme. The railway reached Nornalup in 1929, and the Walpole town site was gazetted in 1933.
Walpole was always the preferred name, but it was believed this was already in use in Tasmania. So the newly gazetted township was officially named Nornalup, but this caused confusion with the railway terminus 13 kilometres (8 mi) east. Eventually the Post Office advised that there was no Walpole in Tasmania, and in 1934 the town reverted to its original name of Walpole.
Walpole is one of the few towns through which the Bibbulmun Track passes.