Okauchee, believed to derive from the Potawatomi term "gachi," meaning "something small," was settled in 1839 by Orson Reed. His mill was the first building in the new community and provided lumber for construction of the nearby Watertown Plank Road in 1850. The following year, Israel and Vesta McConnell built a stagecoach inn to serve travelers along the Plank Road. Within two years, the village also had a railroad depot on the newly completed Milwaukee and Watertown Railroad. During the early twentieth century, Okauchee became a resort destination for Milwaukeeans, who came by train and were then escorted by boat to the many small resort hotels and cottages around Okauchee Lake. By 1927, Okauchee had eleven hotels among its tourist-oriented businesses. While most of the small cottages have been converted to year-round residences, Okauchee Lake continues to be a destination for outdoor recreational activities.