Ancaster was established formally in 1792 but the area now referred to as Ancaster Village had been referred to informally by local villagers by the more colourful name of Wilson's Mills. This was in reference to millwright James Wilson who along with his affluent fur trader, entrepreneur and business partner Richard Beasley were the primary founders of Ancaster village. With Beasley’s financial help, Wilson opened a gristmill in 1791 and a sawmill in 1792. In order to attract workers to his mills, Wilson needed to provide the social amenities and commercial framework for an area of land which in that period was nothing more than an isolated patch of forest with a running stream. Wilson managed to create the impetus for a community by constructing worker dwellings, a general store, a blacksmith shop, a distillery and a tavern, all within walking distance of his mills. As a result Wilson's Mills as a community began to thrive. To this day the main road that winds through the historical Ancaster Village still bears Wilson's name. By 1793 an area of land that contained Wilson's Mills was finally surveyed and officially came to be known as Ancaster Township as chosen by the then Lieutenant Governor of Upper Canada John Graves Simcoe. Simcoe was apparently inspired in the name choice by Peregrine Bertie, the 3rd Duke of Ancaster and Kesteven.

In 1794 Wilson sold his business empire to another trader named Jean Rousseaux who already had a home and general store on Wilson Street. James Wilson at this point moved away and the local villagers gradually began referring to the community of Wilson's Mills as Ancaster Village. Curiously, the detailed whereabouts or activities of James Wilson after his departure are a mystery. Rousseaux eventually resold the mills to the Union Mill Company. With the profits from this business transaction Rousseaux built the Union Hotel on Wilson Street which is now remembered as the location of the Bloody Assize trials in 1814 during the War of 1812. In 1820 Job Lodor acquired the Union Mill Company and rejuvenated Ancaster’s industrial base. A foundry was established in 1826 by William Wiard but two of his employees, Harris and Alonzo Egleston who arrived in 1832, eventually bought him out. The Eglestons then proceeded to expand their own business empire which included rebuilding a gristmill in 1863 at the present day location of the Old Ancaster Mill on the old Dundas Road. This Egleston mill was the 4th Ancaster mill and the third to be rebuilt at this current location. Wilson’s original mills burnt down in 1812 and were relocated and rebuilt in stone at this present Old Ancaster Mill location. Again at this same location a second mill burnt down in 1818 as well as third mill that was damaged by fire in 1854.

Wilson’s original mill foundations still exist. The much restored and modified remnants of the Eglestons now operates as the Ancaster Old Mill, a restaurant and banquet hall. The Barracks of 1812 still stand as a reminder of the war of 1812. Examples of Victorian architecture are located on Wilson Street, amongst them the Richardson residence, which was built in 1872 as a wedding present for Dr Henry Richardson and his new bride Sarah Eggleson.

In an age before electricity, the village of Ancaster had an early economic advantage in the region. This was due to the abundant energy that could be tapped by mills from streams and creeks that naturally existed because this settlement existed amidst a break in the Niagara Escarpment. The location was also advantageous as it existed at the end of Mohawk Road which in the late 18th century was one of the most important transportation routes in Upper Canada. The original route of this Mohawk Trail had apparently existed for hundreds of years previously as a heavily travelled First Nations trail that eventually linked up with similar trails in New York State. The Six Nations First Nations had historically used the region of Ancaster and surrounding area as a meeting place even up to the period of The War of 1812. Ancaster also had fertile soil which encouraged pioneer settlers to arrive in this region to clear the land and plant crops for subsistence agriculture. An interesting example of Ancaster's influence in the late 18th century was that it was once considered a strong candidate to be the capital of Upper Canada. The original capital Newark (now Niagara-on-the-Lake) was judged too highly vulnerable to an American attack due to its close proximity to the United States border. In the end, in 1796, John Graves Simcoe selected York (now Toronto), not Ancaster as the capital of Upper Canada.