The original settlement at Godstone was called 'Wachelestede' and under this name it is recorded in the Domesday Survey of 1086 as the property of Count Eustace. It was also known as 'Walkingstead' or 'Walkhampstead', the first element of which may be a personal name. It may also refer to the process of treading or 'walking' cloth in vats of fuller's earth and water to remove the natural oils before dyeing. Apparently, fuller's earth was at one time dug near Godstone.

A settlement grew up upon the high ground around the medieval church situated on the main route through the parish and this probably acquired the name of Godstone, which is first recorded in surviving documents in 1248. Later, probably in the 16th century, the main route through Godstone was moved further west and the present settlement, based around the green, was developed. This movement has left the church perhaps half a mile away from the centre of the village.

In 1555, during the reign of the Roman Catholic Queen Mary, two Godstone men, John Launder and Thomas Iveson, were burnt at the stake for admitting that they were Protestants and refusing to adhere to Catholic doctrine.

There were a number of industries established through the centuries in the area. Firestone was mined and quarried from the Upper Greensand. It was so-called because of its suitability for use in ovens and furnaces. Iron ore was also dug and there were iron works in the area as late as the 18th century. From about 1612 until 1636 the Evelyn family had a gunpowder works at Godstone.

There is a house in South Godstone known as 'Iron Peartree Cottage'. It is said that it acquired this name because of a pear tree growing in the garden, which produced stubbornly hard fruit. In the early 18th century it was discovered that water from a well in the same garden had curative properties. Soon a booming business was established and much of the water was bottled in distinctive pots marked 'Iron Pear Tree Water nr Godstone'. This was probably one of the earliest examples of commercially bottled water. The water was also available at the White Hart Inn at Godstone but, generously, it was given free to the poor.

The railway station at Godstone, situated about two miles from the centre of the village, was opened in 1842 and by the end of the Victorian period a substantial new settlement had grown up around the station.