Schwanden is a name of a clearing, that was applied to the settlement built there. The name goes back to the Swiss German Schwand- ("clearing"). The added "bei Brienz" was added in 1911 to ease distinction with the municipality Schwanden in the canton of Glarus, and numerous villages across Switzerland. The first historical appearance of the place was in 1524.
The three streams Glyssibach, Schwanderbach, and Lammbach flow through the town and lead soon thereafter to Lake Brienz. In the past the streams were dangerous, as they were prone to sudden onrushes of water. In order to reduce the danger, walls have been built to contain it in certain areas.