Montague's history begins with the formation of Prince Edward Island. The area around Cardigan Bay is one of the youngest on the Island, and is composed of Permian deposits, formed 280 million years ago. Many years later, humans moved into the area; first the Paleo-Indians, then the Shellfish People, and finally the Micmac tribe, who were to exist on "Abegweit" for many years before the arrival of the European.

In 1731 a company was founded in France to organize farming and fishing on Isle St. Jean. The founders planned to sell their products at Fortress Louisbourg, the Cape Breton stronghold of the Acadians, and bought 3000 acres of land. This land was located where the present day Montague and Brudenell Rivers flow into Georgetown Harbour.

Jean-Pierre Roma, one of the members of the company, went to this location and in 1732 built a town on Brudenell Point which he named Three Rivers. The group of buildings, which he constructed in the "piquet" style, included a Company House, fishermen's quarters, a bakehouse, a storehouse, a forge and stable, and residences for the ships' officers and crews, labourers, overseers and tradesmen. Each house had its own garden where cabbage, turnip, wheat and peas were grown. Wells were dug, and a stone jetty was built off the point. In order to make it more accessible, roads were built to connect the new community with Cardigan, Souris, St. Peter's and the capital, Port la Joie (now known as Charlottetown).

Roma wanted to make Three Rivers the centre of a commercial and fishing empire, but he was not encouraged by his partners, who refused to give him further financial support. As a result, Roma became sole proprietor and commandant of the town, which prospered due to his strict economy. In 1738, they were expecting an abundant harvest when the land was laid waste by a plague of field mice. Roma later devoted himself to a study of the mice to prevent such disasters.

Europe was at war in 1745, and as a result, the English in North America attacked Louisbourg. On the way to the fortress a British ship stopped in Three Rivers. Roma was taken by surprise and offered no resistance, fleeing into the woods with his family while Three Rivers was looted and burned to the ground.

During Samuel Holland's 1764-5 survey of the Island, a Lieutenant Robinson was dispatched to map the river system in detail. Montague River was named in honour of either George Brudenell, Fourth Earl of Cardigan and Duke of Montague; John Montague, Third Earl of Sandwich; or Montague Wilmot, the Governor of Nova Scotia and St. John's Island at the time of Holland's survey. The Three Rivers area did not see significant settlement again until a group of Scottish immigrants settled in 1803 near the old French site, re-naming it Brudenell.

During the thirteen years of Roma's settlement, the area that we now know as Monatgue lay undisturbed. The town that we are familiar with today was known as Lot 52 and Lot 59 after Holland's survey. Lot 59 (the south side of Montague) had not been included in the lottery as it had been previously granted to a group of men engaged in the fishery who had made improvements to the land. David Higgins, part of that group, made attempts to establish a community by building a sawmill and a gristmill and clearing thirty acres for a farm. Higgins ran into financial difficulty, though, and while procuring supplies he was captured by an American privateer. Due to the cost of his ransom, he ran out of money and had to sell his share of the land. The population of Lot 59 decreased from 32 tenants in 1774 to 15 in 1820.

Lot 52 (the north side) had been drawn by three people, all by the name of Douglas. The settlement was neglected until 1775, when it was taken over by people named Tead, Dodd, Curry and Fontenalle. They, too, did not bring out settlers (part of the requirements for ownership of lots), so the land reverted back to the Crown for dispersal.

One of the first permanent settlers in Montague Bridge was John Aitken, who arrived on Lot 59 in 1775. A 1798 census for that lot shows that other settlers by the names of Young, Clark, Keoughan and Creed had also established themselves. In 1804 Joseph Ball made a map of the village of Montague Bridge (as it was then known): there was a wharf on the south side, a bridge and road to Charlottetown, a road to Wightman's Point, three lots of land owned by a Dewar and two different MacDonalds, thirteen lots owned by Patrick Stephens and land owned by John Lemon.

In the 1820s over 800 settlers came into the Three Rivers area, although some of the areas around Montague, including Lots 51 and 52, were slow to colonize. Andrew MacDonald owned land in Lot 52, and in 1806 brought fifty settlers in, eventually attracting more through Royal Gazette advertisements. He gave the newcomers the choice of purchasing land outright or buying a long-term lease. Much of the settlement occurred in Lots 59 and 53. Conditions were often very different from what the settlers had expected when they left their homelands. Much of the area was deep wilderness, and many of the inhabitants had developed very rough appearances. There were very few close neighbours and little exposure to the church.

In 1832, another survey added the names Lambert, Beers, Clay, Annear, Collins, O'Halloran, Watson, Rourke, Lannon and MacDiarmid to the list of inhabitants. By 1840 there were at least four small clearings settled on the south side in Lot 59. At the same time, there were a few settlers in Lot 52, and a rough bridge was built to link both sides. It was made from logs and whatever was at hand, and eventually fell into disrepair and was replaced by a stronger wooden structure. The decision to build a bridge is the reason for Montague's existence today. The inhabitants were given twenty pounds by the Commission on Roads and Bridges and were required to build the bridge themselves.

The first church in Montague was built in 1851 where the present Presbyterian church stands. The Bible Christian Church was the first to establish a following in the town, and the home of Philip Beers was used for services before the other structure was built. Reverend Francis Metherell acted as a missionary and a preacher. He also served Georgetown, Vernon River, and the Three Rivers settlement, and had to divide his time between these places. As a result, lay preachers became an important part of the early church.

Montague Road first appeared on maps in 1851, showing the growing importance of the town. It connected Montague Bridge with Brudenell Bridge and linked Lower Montague with the Georgetown Road, an important route to Charlottetown. This helped to increase the exportation of farm products and logging material. Mills became very important, with three being established in the area. A sawmill owned by Philip Beers operated on Brown's Creek. Donald Campbell had a lumber and grain mill on the other branch of the Montague River.