Kahibah is the closest suburb to Glenrock Lagoon, and is drained by Flaggy and Little Flaggy creeks which flows into Glenrock Lagoon 2 km to the east. The suburb's name is from the Aboriginal name word "Ky-yee-bah", which meant either a place for games or to be active and eager. The local Aboriginal people, the Awabakal people, had camps in the area of Glenrock Lagoon, and named the area "Pillapay-Kullaitaran", meaning "Valley of the palms".

In a letter dated 12 October 1842, to W. Kirchner of Sydney, Friedrich Wilhelm Ludwig Leichhardt describes a walk through the valley on his way from Newcastle to Redhead via Charlestown. On this walk he described the view of the lagoon from a high vantage point. That vantage point is today known as "Leichhardt Lookout", which is on the Great North Walk.

The township of Kahibah was gazetted on 27 February 1894. This township is not to be confused with a proposed village "Kahibah" approved by the Surveyor-General Office in 1865 which was to be located on the northern side of the entrance of Lake Macquarie where the suburbs of Pelican and Blacksmiths now exist.

In 1880 a coal rail line was built to Redhead with the line being extended to Belmont in 1916. A station was built at Kahibah. On 8 April 1971 at 1710 the last rail passenger train to Belmont via Kahibah left Newcastle Station with the rail line closing to all coal traffic on 21 December 1992. Since then the line has been redeveloped to a cycleway called "The Fernleigh Track". The first section from Adamstown to Kahibah was opened on 2 February 2003. The second stage, Kahibah to Whitebridge was opened on 7 May 2005.

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