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The community was originally called Sandy Bay and was later changed to Parsons Pond. This name may have come from a visiting clergyman, Rev. Isaac Parsons or from a seasonal visitor to the area.

The first census was taken in 1874, and it showed a population of 18. By 1901, there were 63 residents and in 1911 more than 100.

In 1867, John Silver heard about oil slicks appearing on nearby Moulting Pond and tried drilling on its north side. He had to abandon this because of objections from the French. Another attempt was made by the Newfoundland Oil Company in 1894. They struck oil but had to abandon the operation due to operational difficulties. Between 1916 and 1926, the General Oilfields Company of England operated 3 wells and a small refinery. The quality of the oil was high, but its quantity was low and these wells were later abandoned.

The lobster fishery remains an important employer in the town, as well as the provision of tourism services since the opening of Gros Morne National Park. The town was incorporated in 1966. Its population as of 1991, 582.

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