Netanya was established near the ancient site of Poleg by the Bnei Binyamin association in Zikhron Ya'akov. It was named in honor of Nathan (Hebrew: Natan) Straus (1848–1931), co-owner of Macy's department store, New York City Parks Commissioner, and president of the New York City Board of Health, who gifted two-thirds of his personal fortune to projects benefiting Jews and Arabs in Palestine. "Netanya...was named for Straus in the hope he would donate money to them. When he told them he had no more money to give they were disappointed, but decided to keep the city's name anyway." In 1928 members of Bnei Binyamin and Hanote, an organisation set up after Straus was informed of the establishment of the settlement, purchased 350 acres (1.4 km2) of Umm Khaled lands.
Zion Square, Netanya, 1939
On December 14, 1928 a team led by Moshe Shaked began digging for water at the site. After water was discovered in February 1929, the first five settlers moved onto the land. In the weeks that followed, more settlers began arriving. Development was set back due to the 1929 Palestine riots and massacre of Jews. By September, however, development was back on track with the cornerstones for the first 10 houses being laid on Sukkot.
The first kindergarten opened in 1930 and the first school in 1931. In the 1931 census of Palestine, Netanya was recorded as having 253 residents. In 1933, the British architect Clifford Holliday drew up a plan for Netanya as a tourist resort. Holliday also designed urban projects in Jaffa, Tiberias, Lydda and Ramla. The first urban plan divided the city into three sections with a tourism district along the coastline, housing, farms and commerce in the center, and agriculture and industry to the east. That year also saw the completion of the Tel Aviv Hotel, the first hotel in Netanya, as well as the establishment of two new neighborhoods, Ben Zion and Geva.
The moshava continued to grow in 1934, when the first ship of illegal immigrants carried 350 to Netanya's shoreline. These operations continued until 1939, with over seventeen ships landing near the city, being aided by the residents of Netanya. Whilst flourishing agriculturally, 1934 also saw the city diversify with Primazon opening the first factory there, producing fruit and vegetable preserves. Following this, the first industrial zone was set up, whilst the Shone Halahot Synagogue was built and the Bialik School inaugurated.
In 1937 the cornerstone was laid for a new commercial center and the connection of Netanya to the Tel Aviv-Haifa road. In 1940, the British Mandate government defined Netanya as a local council of which Oved Ben-Ami was elected head. In 1944, Netanya had a population of 4,900. The first high school in Netanya opened in 1945.
During the Jewish insurgency in Palestine, the Jewish underground group Irgun launched a number of attacks against British military and police forces in the Netanya area. The town itself was a bastion of support for the Irgun. The most infamous incident happened in July 1947, in what became known as the Sergeants affair. After three Irgun fighters had been sentenced to death by the British, the Irgun abducted two British sergeants on a Netanya street, and hid them in an abandoned factory. The British responded by declaring martial law and placing Netanya and the surrounding area under curfew. The British Army searched the town and interrogated residents, but did not find the sergeants. After the three Irgun fighters were hanged, the Irgun hanged the two sergeants in the factory and re-hanged and booby trapped their bodies in an orange grove.
In November 1947, an Egged bus which left Netanya for Jerusalem was attacked in Petah Tikva. In 1948, following the withdrawal of British forces from Netanya and the 1948 Arab-Israeli War, a large military base was established in the city. On December 3, 1948, after fighting in the area had calmed down, Netanya was designated a city, the first city to be designated in the newly established State of Israel. A number of nearby settlements, Ramat Tiomkin, Ein Hatchlelet, Pardes Hagdud, and Ramat Ephraim, were annexed to Netanya. At this time, Netanya had a population of 11,600. In 1949, the Kiryat Eliezer Kaplan Industrial Zone was inaugurated and the nearby settlement of Neve Itamar, which had been founded in 1944, was annexed to Netanya.
Netanya railway station was opened in 1953. The population reached 31,000 in 1955. To accommodate the influx of newcomers, the Israeli Housing Ministry built housing units of 50 square meters. The cornerstone of Kiryat Sanz, a religious neighborhood was laid in 1956. The first stock exchange built in Israel was built in Netanya. By 1961, the city's population had grown to 41,300.
During the Six-Day War in 1967, Netanya was hit by Jordanian artillery, and Jordanian planes made sorties near Netanya, but failed to cause major damage. A lone Iraqi bomber attacked Netanya, dropping several bombs which damaged a factory and caused some casualties, shortly before being shot down.
Netanya had a population of 71,100 in 1972. Laniado Hospital opened its doors in 1975, starting with an outpatient clinic, and gradually expanding throughout the following years. The population had grown to 102,300 in 1983. Two master plans for the city, released in 1982 and 1985 respectively, saw the new standard apartment size increase to a minimum of 100 square meters. Hotel development along the coast was further advanced, and tourism gradually increased. At its peak in the 1980s, Netanya accounted for 10% of national tourism. This, together with its thriving diamond industry, led it to be known as the "tourism and diamond city." Tourism would later slow down after the diamond industry moved away and government budgets would focus on developing other areas for tourism.
In the 1990s, large numbers of immigrants from the former Soviet Union settled in Netanya, greatly expanding the city's population and resulting in large-scale housing construction.
Netanya suffered from several Palestinian bombings during the Second Intifada, including the Netanya Market bombing and, in the same month, the Passover massacre which caused the death of 29 people. Such attacks were cited as justification for the construction of the Israeli West Bank barrier which has proved effective in stemming suicide attacks.
Following increased immigration by French Jews to Israel in the 2000s and 2010s, Netanya became one of their primary destinations. Thousands of French immigrants settled in Netanya, which influenced the local culture.