During the early part of the 20th century, the area was a popular subject for the many scenic art works of Tom Thomson and members of the Group of Seven. There was a slight decline in economic activity shortly after World War I with J.R. Booth's construction of a rival town, Depot Harbour on nearby Parry Island, but this setback was overcome through later developments in tourism and commerce, and the accidental destruction by fire of the entire town of Depot Harbour on August 14, 1945.
The body of water that gives the town its name was surveyed and named by Captain Henry Bayfield in the 19th century, in honour of the Arctic explorer Sir William Edward Parry. In 1857, the modern town site was established near the Ojibwa village ofWasauksing ("shining shore") at the mouth of the Seguin River. In the late 19th century, rail service was established, making the town an important depot along the rail lines to Western Canada.
In 1916, a cordite factory was established in the nearby town of Nobel for the Imperial Munitions Board. In the late 1920s and early 1930s, an explosives and munitions factory was also built at Nobel, making Parry Sound an important part of both the First World War and the Second World War effort
