The town is named for Captain James Morisset, who camped there in 1823 while making the first overland journey from Sydney to Newcastle. Historically there has been considerable confusion over the spelling of the town: Morissett, Morriset, Morrissett and Morrisset have been used. According to the Newcastle Morning Herald:
In 1900, a psychiatric hospital opened on a large estate along the lake shore. At its height in the 1960s, Morisset Mental Hospital had 1,600 inmates. The Hospital continues to dominate Morisset's reputation, although it now holds less than 100 patients, and is threatened with closure.
Avondale is interesting in that it has a remarkably high Seventh-day Adventist population. Avondale University, a Seventh-day Adventist institution, was opened there in 1896, originally with the name Avondale College. The Church established the Sanitarium Health Food Company in 1898, to cater for their mainly vegetarian needs. A factory was built in the grounds of Avondale College. Sanitarium is now one of Australia's (and New Zealand's) leading breakfast food companies. The Avondale factory is still present, although very much expanded. Sanitarium is still wholly owned by the Church.
In more recent times, the Morisset Peninsula has become the main residential area. It has experienced a high rate of growth since the construction of Eraring Power Station in 1986. Most of Bonnells Bay is now what long-time residents quaintly refer to as "high-density housing", although by city standards it is decidedly low-density. Several retirement villages have been built, most of them only in the last decade. Subdivision of larger blocks has come close to saturation in many suburbs, with only a few hobby-farms still remaining, and precious little natural bushland left.