Most of the early inhabitants were farmers, who found the soil loamy and easily worked. Windham provided numerous sites for water power, and as early as 1738 a mill was erected at Mallison Falls. The Cumberland and Oxford Canal opened in 1832, carrying goods along the Presumpscot River between Sebago Lake and Portland. In 1859, when Windham's population was 2,380, it had 8 sawmills, a corn and flour mill, 2 shingle mills, a fulling mill, 2 carding mills, a woolen textile factory, a barrel factory, a chair stuff factory, a gunpowder factory and 2 tanneries.
By 1886, the town also produced felt, boots and shoes, wood-paper board, carriages, harness, coffins, clothing and wooden ware. On April 4, 1919, the legislature passed an act creating at South Windham the Reformatory for Men. It is now the Maine Correctional Center, a minimum to medium security facility for men and women. With its principal village at North Windham, the town is today a recreational area and Portland suburb.