The borough is said to take its name from an English sea captain named Stone who took shelter from a storm in the natural harbor on the back-bay side of the island sometime in the eighteenth or nineteenth century. The story is unverified but well-told, the kind of origin tale that small towns prefer to the duller alternatives. What is documented: development began in the late nineteenth century as a beach resort along the West Jersey and Seashore Railroad line. The railroads brought Philadelphia wealth south, and the wealthy Philadelphians bought lots, built houses, and turned a stretch of windswept barrier island into a second-home market. Stone Harbor was incorporated as a borough on April 3, 1914, carved out of Middle Township by referendum. It gained a small piece of Avalon on December 27, 1941. The borders have not changed since.

The Stone Harbor Water Tower, built in 1978, stands 133 feet high above the island and holds 500,000 gallons of water, pumped from four wells dug 890 feet down into the Kirkwood-Cohansey aquifer beneath South Jersey. The 1924 pumping station at 96th Street, which still stands, is the oldest municipal structure remaining in the borough. In 2005, the pop artist Peter Max - by then a fixture of American commercial art - developed a plan to wrap the tower in a vinyl mural made from digital prints of his paintings. Four large vinyl panels were attached to the tower's support column and displayed during the summer of 2006, with prints sold through Ocean Galleries as a fundraiser for the Wetlands Institute. The wrap is no longer installed annually, but the project established the water tower as a landmark visible from every street in town. The locals call it the silver giant or the Stone Harbor tower, depending on the day.

On the back-bay side of the borough, between 111th and 116th Streets, sits the Stone Harbor Bird Sanctuary - twenty-one acres of preserved upland forest and salt marsh that once hosted one of the largest heron rookeries on the East Coast. Common, snowy, and great egrets nested here, along with black-crowned night herons and yellow-crowned night herons, in numbers that drew birders from across the country. The colony collapsed in the 1990s for reasons that ornithologists still debate - changes in water quality, predation pressure, habitat shifts, or some combination. The sanctuary remains, and migratory birds still pass through. Stone Harbor sits on the same Atlantic Flyway as Cape May to the south, and the bird sanctuary is one piece of a larger habitat network that the southern Cape May County peninsula provides every spring and fall.

In June 1937 the Sisters, Servants of the Immaculate Heart of Mary opened a convent on the Stone Harbor oceanfront called Villa Maria by the Sea. The convent is still there, used by the order as a retreat. The beach directly in front of the property is called Nun's Beach by everyone in town, and not officially named anything else. Nun's Beach is also one of the better surf spots on Seven Mile Island - sandbar configuration produces consistently rideable waves when the swell is right. The Nun's Beach Surf Invitational, held each summer, raises money to support the sisters' retreat work. It is the kind of arrangement that makes more sense the longer you live in a small beach town - a Catholic retreat order, a surf contest, and a fundraising relationship that benefits both sides.

Stone Harbor never quite became Avalon. The borough is roughly half the size, with a smaller commercial district, fewer through-streets, and a quieter rhythm. The school district had only 78 students enrolled in 2023-24 - the fourth-smallest in New Jersey. The Stone Harbor and Avalon school districts technically operate separately but function as one, sharing teachers across the two buildings. The summer real estate market is global - Philadelphia, New York, and Quebec residents all hold property here in disproportionate numbers - but the year-round population is tiny, conservative, and politically engaged. Forbes ranked Stone Harbor's ZIP code as the 191st most expensive in the country in 2014. The author Joseph Hergesheimer, who lived here in the early twentieth century, wrote naturalistic novels about decadent wealthy life. He chose his subject matter from the right address.