Milford Mills was one of several farming villages settled by Welsh, Scots-Irish and English in the first quarter of the 18th century in Upper Uwchlan Township. Like nearby Lyndell and Dorlan, Milford Mills grew during the 19th century as paper and textile manufacturing flourished. Bypassed by large-scale industry in the late 19th century, the region reverted to an agricultural economy until after World War II when the Pennsylvania Turnpike brought suburban development to northwestern Chester County.
From 1964-1972 the State of Pennsylvania acquired properties throughout the region for the Marsh Creek Dam project, relocating residents and finally razing the village entirely. Today the site lies beneath the 530-acre (2.1 km2) Marsh Creek Lake: part of a water management project operated by the Chester County Water Resources Authority and the State of Pennsylvania.
Abandoned roads and traces of houses, barns and other structures can be seen on the shores of the lake and in adjacent recreation areas in Marsh Creek State Park.