On the high plateau, bordered by the Willamette and Molalla Rivers, Canby was once the seasonal meeting place for tribes of local Indians and was well known for its annual crop of wild strawberries. Settlers arrived, including Philander and Anna Lee in 1848, who bought “squatter's" rights beside a spring-fed creek on what is now SE First Avenue. Lee began growing apples on 80 acres of land and shipped them to the gold miners in California. In 1850, the Lees gained title to their 647 acres through the Donation Land Claim Act which brought many more settlers over the Oregon Trail to this and surrounding areas. The Willamette River served as main the main source of transportation, with steamboats taking produce into the markets of Oregon City and Portland from the little local communities of Baker Prairie, Barlow, New Era, Riverside, Macksburg, Mundorf, Lone Elder, Mark Prairie and others.
As the Oregon and California Railroad line from east Portland to San Francisco developed, Lee sold 111 acres for the 24-block city. Major General Edward R.S. Canby, hero of the Civil and Indian Wars, had arrived in Oregon only one week earlier to assume command of the U.S. Army's Department of the Columbia and the new town was given this hero's name. Rails were laid in 1870 and in 1873 the depot was built near what is now NW First and Grant. Canby was incorporated on February 15, 1893, making it the second oldest city in Clackamas County. The railroad tracks were quickly lined with warehouses as the agriculture industry grew in the Canby area. Local crops included grain, hay, potatoes, dairy products, turkeys, flax, prunes, rhubarb, asparagus, berries, nuts, livestock, lumber, bulbs, flowers, and nursery stock. Prior to 1920, the "Road of 1000 Wonders", now NW First Avenue, was the main route through Canby, running northeast to Oregon City and west to Barlow and up the valley. That year marked the arrival of the Pacific Highway (Hwy 99E) to the south of the railroad tracks, making the beginning of yet a new era of transportation and development in Canby.