Port Arthur Penal Settlement—named in honour of Lt-Governor George Arthur—began life in 1830 as a punishment-oriented timber station. With the progressive addition of further industries, tailored for heavy and light labour, Port Arthur held a key position within the colony's judicial system until its closure in 1877.

Replacing Macquarie Harbour and Maria Island as the primary source of secondary punishment, Port Arthur's 47-year operation was due largely to its geographical isolation and the availability of natural resources, chief among which was timber, and harvesting was carried out until the 1870s. Scattered outcrops of sandstone and dolerite provided other materials for construction, and tracts of land stretching back from the cove providing agricultural and farming land for supplementing rations.

In addition Port Arthur had some of the newest and strictest security measures of the Australian penal system. Port Arthur was secured naturally by shark-infested waters on three sides, and the 30m-wide isthmus of Eaglehawk Neck that connected it to the mainland was crossed by fences and guarded by prison guards and dogs. Contact between visiting seamen and prisoners was barred. Ships had to check in their sails and oars upon landing to prevent any unnotified leavings. In 1836, a tramway was established between Taranna and a jetty in Long Bay, north of Port Arthur. The sole propulsion was convicts.

Port Arthur achieved prominence under the regimented governance of Captain Charles O'Hara Booth (1833—44). During his command, convicts experienced a system of administration based on corporal punishment. Overseers and constables relied upon the threat of the cat-o-nine-tails, irons or sensory deprivation in solitary confinement, with extreme offences tried in Hobart. The daily work of the convicts ranged from ganged labour—including timber-getters in irons, and unironed garden gangs— to relatively skilled labour in the shipyards or artificers' shops. Combined with scholastic and religious instruction, the labour was designed to provide an avenue to reformation, as well as to improve the economic returns of a large and expensive settlement. Both imperial and colonial governments were preoccupied with making Port Arthur self-sustaining.

From 1833 until the 1850s Port Arthur was a destination for the hardest of convicted British and Irish criminals, those who were secondary offenders, having re-offended after their arrival in Australia. Rebellious personalities from other convict stations were also sent here, a quite undesirable punishment. It contains one of the best examples of a "Separate Prison" system based on that at Pentonville prison in London, The Separate Prison (or sometimes known as The Model Prison) was completed in 1853 and extended in 1855. The 80-cell prison was built in the shape of a cross with radial exercise yards around a central hall and chapel. It signalled a shift from physical punishment to psychological punishment.

It was thought that the harsh corporal punishment, such as whippings, used in other penal stations only served to harden criminals, and did nothing to turn them from their immoral ways. Under this system of punishment the "Silent System" was implemented in the building. Here, prisoners were hooded and made to stay silent, this was supposed to allow time for the prisoner to reflect upon the actions which had brought him there. In many ways Port Arthur was the pin-up for many of the penal reform movement, despite shipping, housing and slave-labour use of convicts being as harsh, or worse, than other stations around the nation.

Changes in English penology had seen the 1842 completion of Pentonville Prison. This marked a shift in the treatment of refractory convicts as emphasis moved from punishment and reform through physical subjugation, to psychological control. This was reflected at Port Arthur in the 1848 cessation of flogging and the construction of the Separate Prison in 1850.

The governance of JH Boyd (1853-71) saw the station reach its maximum operational and geographic extent, as agriculture and timber harvesting increased. The station's workshops housed blacksmiths, shoemakers, tailors, basketmakers, carpenters and stonemasons.

Port Arthur was sold as an inescapable prison, much like the later Alcatraz Island in the United States. Some prisoners were not discouraged by this, and tried to escape. Martin Cash successfully escaped along with two others. One of the most infamous incidents, simply for its bizarreness, was the escape attempt of one George "Billy" Hunt. Hunt disguised himself using a kangaroo hide and tried to flee across the Neck, but the half-starved guards on duty tried to shoot him to supplement their meager rations. When he noticed them sighting him up, Hunt threw off his disguise and surrendered, receiving 150 lashes.

Port Arthur was also the destination for juvenile convicts, receiving many boys, some as young as nine arrested for stealing toys. The boys were separated from the main convict population and kept on Point Puer, the British Empire's first boys' prison. Like the adults, the boys were used in hard labour such as stone cutting and construction. One of the buildings constructed was one of Australia's first non-denominational churches, built in a Gothic style. Attendance of the weekly Sunday service was compulsory for the prison population, critics of the new system noted that this and other measures seemed to have negligible impact on reformation.

The 1850s and 1860s were years of remarkable activity, with the aim to making the station economically sustainable. Expansive tracts of bush were harvested to feed a burgeoning timber industry and large plots of ground were turned over to cultivation. 1857 saw the conversion of the old flour mill and granary into a penitentiary, adjacent to which was built a large range of workshops housing a steam-driven sawmill, blacksmith and forge, and carpentry workshop. In 1864 the last great project at the site, the Asylum, was also begun. This pulse of energy, however, could not be sustained.

With the end of transportation in 1853, the number of convicts at Port Arthur began to decline. From a high of 1200 during 1846, the 1870s population lingered at around 500. However, since Port Arthur was one of the few secondary punishment stations operating in the colonies, it still received a large proportion of colonially sentenced men, as well as the old transportees still within the system.

The 1860s shuffled into the 1870s and the settlement began to enter its twilight. Numbers of convicts dwindled, those remaining behind were too aged, infirm or insane to be of any use. The settlement that had hummed with life slowly ground to a standstill. The last convict was shipped out in 1877.

Despite its badge as a pioneer in the new, nicer age of imprisonment, Port Arthur was still as harsh and brutal as other penal settlements. Some critics might even suggest that its use of psychological punishment, compounded with no hope of escape, made it one of the worst. Some tales suggest that prisoners committed murder (an offence punishable by death) just to escape the desolation of life at the camp. The Island of the Dead was the destination for all who died inside the prison camps. Of the 1646 graves recorded to exist there, only 180, those of prison staff and military personnel, are marked.

Today Port Arthur is home to many reputed cases of haunting and ghosts—particularly of convict origin. These include cases of cells with ghostly screams and empty rocking chairs that move.

After the closure of the penal colony the site was renamed to "Carnavon". During the 1880s the land in and around the site was sold off to the public and a community was established. Devastating fires tore through the area in 1895 and 1897 gutting the old prison buildings, leading to the establishment of the new town, with post office and other facilities.

Port Arthur's story did not end with the removal of the last convict. Almost immediately the site was renamed Carnarvon and, during the 1880s, land was parceled up and put to auction, people taking up residence in and around the old site. Many buildings were demolished, bushfires in 1895 and 1897 furthering the destruction. Buildings that survived were used for private residences or accommodation for the emerging tourist trade. The Separate Prison, Penitentiary and Church ruins were retained largely due to their picturesque appeal. A number of ruins were reserved in 1916 and placed under the control of the Scenery Preservation Board, becoming the first 'historic sites' in Australia. In 1971 the precinct was declared the Port Arthur Historic Site and is currently managed by the Port Arthur Historic Site Management Authority.

Port Arthur is located approximately 80 km south-east of the state capital, Hobart, on the Tasman Peninsula.