The founding of the town dates back to the arrival of Welsh immigrants in Chubut in 1865. The settlement was created on 25 February 1906, as an extension of the Colonia 16 de Octubre, that also contains the town of Trevelin.
The city, the main town of the area, is located by the Esquel Stream and surrounded by the mountains La Zeta, La Cruz, Cerro 21 and La Hoya. La Hoya is known as a ski resort with good quality snow right through the spring. The Los Alerces National Park is 50 km (31 mi) northwest of the city.
Another important tourist attraction is the narrow-gauge train (with 75 cm between the rails), known as La Trochita locally and in English as The Old Patagonian Express, after the book by Paul Theroux. It is said to be the only narrow-gauge long-distance train in operation and the southernmost railway in the world. The first fifty locomotives were brought from Germany (Henschel & Sohn) in 1922 and were originally modified to use fuel oil and steam. Later twenty-five locomotives were bought from the Baldwin Locomotive Works of Philadelphia. The train remains authentic and in operation thanks to the effort of the team of workers at Talleres Ferroviarios El Maiten, that make a lot of pieces and parts by hand. The trains now run as a tourist excursion between Esquel and the small settlement of Nahuel Pan, located at the foot of the volcano of the same name, with other services all the way to El Maitén. Until 1993, the train ran all the way to the city of Ingeniero Jacobacci in Río Negro, from where trains ran to Viedma and from there to Buenos Aires, forming the General Roca railway.
According to the 2001 census [INDEC], the Esquel district had about 28,000 inhabitants, with one of the highest rates of growth in the province, mainly as result of the immigration of people from Buenos Aires, but also from other provinces. It has wide cement streets with sidewalks, and is clean and well maintained. Their hospital is the primary one for