In the early 1880s settlers began to take up land in the Red Deer area and Sylvan Lake was used as a source of fish. In 1899 a sawmill was established and soon a hotel was built for visitors. The development of Sylvan Lake as a resort community was encouraged by the growth of automobile touring and camping in the 1920s and 1930s, which made it accessible to people from Edmonton and other cities, as well as Red Deer.
Sylvan Lake is now one of Alberta's major resort communities. In addition to the lake and water-based activities, other attractions include 2 provincial parks, one of which is within the town's boundaries. Businesses servicing the region's oil and natural gas industries also contribute to the town's economy.