The airport is located on land of the original indigenous owners, the Wathaurong people, and a scatter stone area is preserved on the Avalon Airport site, out of respect for the original owners. The land has undergone many changes over the past century.

In the beginning, the airport was a sheep and cattle farm and homestead, founded by James Austin, an immigrant from Glastonbury, England. Austin established his farm and named the homestead "Avalon" after the isle of Avalon at Glastonbury, the mythical island in the Arthurian legend. In 1952 the Commonwealth Government bought 1,754 ha (4,333 acres) at Avalon for just £110, as the land was deemed to be of poor quality farmland due to the abundance of volcanic rock littering the surface.

The airport was opened in 1953, to cater for the production of military aircraft. Previously, the Government Aircraft Factories at Fishermans Bend, Melbourne had used a runway beside the factory. However, newer jet aircraft required a longer runway for safe operations, and the Fishermans Bend runway was being encroached upon by development.

A 3,048 m (10,000 ft) runway was built by the Country Roads Board, with the first plane landing on 3 April 1953 – a four-engined Avro Lincoln heavy bomber flown from Fishermans Bend. The English Electric Canberra light bomber was under construction at the same time at the new airport. In 1959, Qantas established a training base at the site.

In 1961, Government Aircraft Factories combined with the Commonwealth Aircraft Corporation, and built and serviced 110 Mirage fighters at the site, and in 1970 Jindivik Target Aircraft transferred to Avalon Airport from Fishermans Bend, adding production of 170 Nomad and 75 Hornet military jets, in addition to servicing of other jets.

In 1985, the Government Aircraft Factories changed its name to Aerospace Technologies of Australia (ASTA). Aircraft produced during this time included the GAF Jindivik remotely piloted aircraft, and Nomad civil aircraft. Under the ASTA banner, engines for the Dassault Mirage III jet fighters were produced, as well as assembly of the F/A-18 multirole combat aircraft for the Royal Australian Air Force (RAAF).

In 1990, ASTA acquired 99 year lease on the airport. In 1996, the airport was sold to Foxerco, owned by Linfox and Serco.

In October 1988, the ASTA Aircraft Services division took the first Boeing 747 to Avalon for servicing and maintenance. By December 1993, fifty 747 aircraft had been through the Avalon facility, and 820 people were employed at the site. October 1995 saw a Cathay Pacific Lockheed L-1011 flown to Avalon for scrapping by ASTA Aircraft Services, in what was a one-off event.

Training of pilots from Japan's All Nippon Airways commenced at the airport on 8 September 1993.

On 27 June 1995 Aerospace Technologies of Australia was privatised by the Federal Government, selling the aircraft divisions to Rockwell Australia, and the airport operations to Avalon Airport Geelong Pty Ltd. The ASTA airliner overhauling facility was closed in 1997.

The first scheduled passenger flights out of the airport were operated by Hazelton Airlines, who commenced flights between Avalon Airport and Sydney in February 1995. 36-seat Saab 340 aircraft were used for the service. The service was discontinued after a short time due to a lack of passengers.

Post-privatisation

Between 1997 and 2001 Linfox developed proposals to develop the land which formed the basis of the Avalon Airport Master Plan draft, 2013. In 1992, the airport began hosting the Australian International Airshow.

On 1 June 2004, Jetstar started commercial flights from the airport, in addition to their operations at Melbourne Airport. In 2008, the Federal Government rejected an application to build an international terminal.

In April 2010, Tigerair Australia announced it would base two aircraft and commence operations from Avalon later that year. By June 2011 however, Tigerair Australia announced it would be withdrawing several flights from Avalon, to be operated instead from Melbourne Airport. The remaining Tigerair Australia services were withdrawn after a series of incidents that led to airline's operations being suspended by the Civil Aviation Safety Authority the following month.

In October 2012, the Federal Government announced that the airport's lease would be amended, allowing for the construction of a new terminal and the implementation of international flights. Avalon is the second airport in Victoria to be designated as a port of entry for freight operations.

In February 2022, Bonza announced that the airport would become one of its 17 destinations with the airline planning to fly to the Sunshine Coast from Avalon. Bonza started commercial flights from the airport on 21 February 2023, in addition to their operations at Melbourne Airport. Bonza suspended all flights in early 2024.

International flights

Avalon Airport served international flights between December 2018 and February 2020, until they were terminated due to the COVID-19 pandemic in Australia.