Cape Charles, located close to the mouth of the Chesapeake Bay, on Virginia's Eastern Shore, was founded in 1884 as a planned community by railroad and ferry interests. Historian William G. Thomas writes, "At a cost of nearly $300,000, the N.Y., P. & N. was dredging a new harbor out of a large fresh-water lagoon between King's and Old Plantation creeks in lower Northampton County, and Scott planned to develop a new town around it called Cape Charles City. The appellation "City" for any place on the Eastern Shore was romantic, a vision of the future that the railroad might make possible....In 1890 the Corps of Engineers dredged the harbor basin, its entrance, and a channel through Cherrystone Inlet and built stone jetties protecting the harbor outlet. By 1912 the Corps estimated that Cape Charles harbor handled 2,500,000 tons of freight a year."

Cape Charles was, for many years, the terminal for the Little Creek-Cape Charles Ferry, providing passenger and car ferry service across the bay to Norfolk and Hampton. The last ferry left Cape Charles in 1963. Cape Charles still serves as a terminal for railway barges that carry rail cars from the former Eastern Shore Railroad which is now Bay Coast Railroad across the mouth of the bay to Norfolk. There is also a cement factory nearby.

The town hosted the Northampton Red Sox in the old Eastern Shore Baseball League.

The Cape Charles Historic District and Stratton Manor are listed on the National Register of Historic Places.

As of the census of 2000, there were 1,134 people, 536 households, and 278 families residing in the town. The population density was 309.4 people per square mile (119.3/km²). There were 740 housing units at an average density of 201.9 per square mile (77.9/km²). The racial makeup of the town was 53.79% White, 42.86% African American, 0.09% Native American, 0.44% Asian, 1.59% from other races, and 1.23% from two or more races. Hispanic or Latino of any race were 2.82% of the population.

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