Historically and culturally, the heart of Estero is the spring-fed Estero River, which flows to Estero Bay. Some of the earliest European settlers of the area (notably the Alvarez, Fernandez, Johnson, and Soto families) were fishing families that lived on Mound Key, a mangrove-ringed island that dominates Estero Bay. During the early 20th century, these families moved upriver to the settlement which came to be known as Estero. Estero is also the location of a utopian community called the Koreshan Unity, which is now preserved as the Koreshan State Historic Site. Until the 1970's, most settlement and development in Estero was near the river.

The borders of the area of Estero include Estero Bay to the west, the city of Bonita Springs to the south and the remainder of the CDP bordering with unincorporated Lee County and the CDP of San Carlos Park.

Estero was established and incorporated by the followers of Dr. Cyrus Reed Teed, who proposed a theory of that we live on the inside of the Earth's outer skin, and that celestial bodies are all contained inside the hollow Earth. This theory, which he called Koreshan Unity, drew followers to purchase and occupy a 320-acre (1.3 km²) tract in 1894. They were business-oriented and lived communally, prospering enough to found its own political party ("The Progressive Liberty Party") and incorporate the town in 1904 as Estero. The 1908 death of Dr. Teed (who claimed to be immortal) was a critical blow to the group's faith, whose membership dwindled into the 1960s. The Foundation remains as "The College of Life Foundation," which contributed (for example) at least $25,000 to the Gulf Shore Playhouse in or around 2007[5]. The Koreshans' original tract is now owned by Florida as the Koreshan State Park.

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