Lake Hillier was visited by the Matthew Flinders expedition on 15 January 1802. Flinders's journal entries are considered to be the first written records of the lake. Flinders observed the pink lake after ascending the island's highest peak (now called Flinders Peak), describing the lake as follows:[1]

In the north-eastern part was a small lake of a rose colour, the water of which, as I was informed by Mr. Thistle who visited it, was so saturated with salt that sufficient quantities were crystallised near the shores to load a ship. The specimen he brought on board was of a good quality, and required no other process than drying to be fit for use.

Flinders visited Middle Island again in May 1803; he intended "to stop a day or two in Goose-Island Bay, for the purposes of procuring geese for our sick people, seal oil for our lamps, and a few casks of salt from the lake on Middle Island". It is reported that Flinders subsequently named the lake after William Hillier, a crew member of Investigator who died of dysentery on 20 May 1803 prior to the expedition's departure from Middle Island.[2][3]

In 1889,[4] Edward Andrews investigated the commercial possibilities of producing salt from Lake Hillier, and briefly moved onto the island with both of his sons.[5] They left after working the salt deposits for about one year.[4]

The lake was subject to salt mining during the late 19th century. The salt mining enterprise is reported as failing for a number of reasons including "the toxicity of the salt collected for consumption".[3]