Shelton was settled by the English as part of the town of Stratford, Connecticut, in 1639. On May 15, 1656, the Court of the Colony of Connecticut in Hartford affirmed that the town of Stratford included all of the territory 12 miles (19 km) inland from Long Island Sound, between the Housatonic River and the Fairfield town line. In 1662, Stratford selectmen Lt. Joseph Judson, Captain Joseph Hawley and John Minor had secured all the written deeds of transfer from the Golden Hill Paugussett Indian Nation for this vast territory that comprises the present-day towns of Trumbull, Shelton and Monroe. Shelton was split off from Stratford in 1789, as Huntington (named for Samuel Huntington). The current name originated in a manufacturing village started in the 1860s named for the Shelton Company founded by Edward N. Shelton—also founder of Ousatonic Water Power Company. The rapidly growing borough of Shelton incorporated as a city in 1915 and was consolidated with the town of Huntington in 1919 establishing the present city of Shelton.

Shelton was the site of one of the largest arson fires in the United States history. It happened in 1975 when the Sponge Rubber Products plant (formerly owned by B.F. Goodrich) was set on fire. Charles Moeller, president of parent company Grand Sheet Metal Products, was acquitted on arson charges, but in a civil lawsuit, a jury in 1988 ruled the insurer did not have to pay claims on the fire because a preponderance of evidence showed the company's top officials arranged the fire to claim insurance money. Eight others were convicted or pleaded guilty.

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