The area was initially used as a holiday area and later in 1957 it was proposed that the area should be developed as a camping and caravan park. Instead the government decided that the area would be developed as a townsite. The area was surveyed in 1961 and the bulk of the townsite was planned. Sale of lots within the townsite occurred in 1963, the same year the town was gazetted.
It was named in honour of local Western Australian heroine Grace Bussell.
In 1996 a terrible tragedy occurred on the local beach close to town when four adults and five children were killed in a cliff collapse while watching a surfing carnival. The victims were sheltering underneath a rock overhang at the base of the limestone cliff during a rain storm when the cliff collapsed without warning.