Archaeological sites dating to the last ice age indicate the area around Cold Bay was once inhabited by a large Native population, and was used by European hunters and trappers throughout the 19th century. Izembeck Lagoon was named in 1827 by Count Feodor Kutke, after Karl Izembeck, a surgeon aboard the sloop "Moller." During World War II, Cold Bay was the site of the strategic air base Fort Randall. At that time, the airport was the largest in the state, with a 10,000' runway. The City was incorporated in 1982.
17% of the population are Alaska Native or part Native. Cold Bay services the fishing industry and houses a number of federal offices with services focused on Aleutian transportation and wildlife protection. Subsistence and recreational fishing and hunting are a part of the local culture. Up to 70,000 Canada geese migrate through Cold Bay in the fall. Izembeck Lagoon offers the world's largest eelgrass beds, feeding grounds for more than 100,000 brant during their spring and fall migrations.

During the 2000 U.S. Census, there were 98 total housing units, and 62 were vacant. 17 of these vacant housing units are used only seasonally. 48 residents were employed. The unemployment rate at that time was 33.33%, although 45.45% of all adults were not in the work force. The median household income was $55,750, per capita income was $20,037, and 27.27% of residents were living below the poverty level.

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