Bicheno was first mentioned in any official records when it was called Waubs Harbour, so named after Wauba Debar, an aboriginal who was stolen from her tribe as a teenager to become a "sealer's woman". Her bravery in rescuing two sealers in a storm is commemorated by a headstone which is today located near the town's tennis courts.

After 1803, Waubs Harbour was used as a whaling port and renamed Bicheno after James Ebenezer Bicheno, the British Colonial Secretary for Van Diemen's Land 1843–51.

Bicheno was famous for his girth. It was said that he could fit three full bags of wheat into his trousers. Bicheno died in Hobart in 1851 and bequeathed his substantial library to Tasmania. It was incorporated into the first Tasmanian Library.

Coal was discovered at Denison River in around 1848 and Bicheno Harbour was expanded to allow for the export of this coal which arrived at the port via a 5 kilometre horse drawn railway.

After 1855 with the phasing out of the coal mine, the town reverted to being a modest fishing village with substantial quantities of crayfish, abalone, scallops and trevally. In recent times it has become a popular tourist destination, with a range of accommodation, craft shops, two small aquaria, and a visitor centre. Visitors are also attracted to the Little Penguin colony on adjacent Diamond Island.

Just off the coast to the north of Bicheno is the Diamond Island Nature Reserve. It is possible to walk across from the mainland at low tide. The island is home to large numbers of fairy penguins. It is a popular walk for visitors.

A footway, constructed for Australia's bicentennial in 1988, extends from Redbill Point north of Bicheno, to the blowhole at the south. Whalers Lookout provides good views, and in October and November, gorgeous rock orchids native to the east coast.

Natureworld on the northern side of the town offers an opportunity to see the diverse fauna of the region including Forester kangaroos, Bennett's wallabies, Tasmanian devils, Cape Barren Geese and pelicans and features the Tassie devil Interpretation Centre.

Bicheno is approximately two hours drive from both Hobart and Launceston.

Bicheno has mild weather, with an average maximum of 21 degrees Celsius (70 degrees Fahrenheit) in January and 14.5 degrees Celsius (48 degrees Fahrenheit) in June.