The harbour at Oxelösund has been used for at least 500 years. In the 19th century, an increased extraction from the Mining district of Central Sweden (e.g. Bergslagen), made Oxelösund a harbour of transport. A local railroad company was established in 1873, and bought virtually the entire peninsula which at the time belonged to the estates of the Stjärnholm Castle.
An iron works was constructed in 1913, and the community Oxelösund expanded, with the harbour, rail road and iron works being its cornerstones.
In 1950, the city was sufficiently developed to get the title of a city and was one of the last towns to receive City status in Sweden. Since 1971 this status is obsolete, but Oxelösund is the seat of a municipality with the same territory, one of the smallest in the country.
In November 2011, Oxelösund hosted the Nordic Under-21 Championships in Underwater rugby.