This was once a home to Abenaki Indians, including a band of Sokokis near Post Pond at a place they called Ordanakis. Later, it would be another of many towns granted by Colonial Governor Benning Wentworth along the Connecticut River in 1761. The town encompasses land that, prior to the Lyme's founding, was called Tinkertown. Lyme takes its name from Old Lyme, Connecticut, which lies at the mouth of the Connecticut River. Most of the grantees were from Palmer and Brimfield in Massachusetts, or from Londonderry. In the late 1770s, the town petitioned (ultimately unsuccessfully) to join Vermont.
Stagecoaches traveling the old "Boston Turnpike" from Montreal in the 1830s passed through Lyme, stopping at the Lyme Inn (now Alden Country Inn), built in 1809. Next door to the inn is the 200 year old Congregational Church, whose steeple bell cast by Paul Revere still chimes on the hour. Behind the church is a row of horse sheds dating from 1810, each with the name of the original owner inscribed above the door. The scenic town common is surrounded by antique architecture.
There were 678 households out of which 31.3% had children under the age of 18 living with them, 61.1% were married couples living together, 6.3% had a female householder with no husband present, and 29.9% were non-families. 24.8% of all households were made up of individuals and 8.7% had someone living alone who was 65 years of age or older. The average household size was 2.46 and the average family size was 2.96.
In the town the population was spread out with 25.5% under the age of 18, 3.3% from 18 to 24, 25.4% from 25 to 44, 31.7% from 45 to 64, and 14.1% who were 65 years of age or older. The median age was 43 years. For every 100 females there were 97.5 males. For every 100 females age 18 and over, there were 94.0 males.
The median income for a household in the town was $57,250, and the median income for a family was $64,531. Males had a median income of $40,789 versus $32,917 for females. The per capita income for the town was $35,887. About 1.7% of families and 4.2% of the population were below the poverty line, including 1.4% of those under age 18 and 6.2% of those age 65 or over.