Amos Janney (1700-1746) founded Waterford in 1733 after accepting a large parcel of land in exchange for surveying services to Thomas, 6th Lord Fairfax (1693-1791). He added several thousand acres to his original parcel and established a mill, thus giving the area its original name, Janney's Mill. Janney was a member of the Society of Friends and came to the area from Bucks County, Pennsylvania. Many other Quakers from Bucks County and the surrounding areas followed him to Virginia, and Janney's Mill quickly became a commercial center. The village officially became known as Waterford in the 1780s and was incorporated by the Virginia General Assembly in 1836. Prior to the Civil War, Waterford was Loudoun County's second largest town after Leesburg.

Waterford's growth stagnated in the mid-19th century, and the Civil War took a heavy toll on the town. Initially Waterford occupied a prime location for trade with easy access to Leesburg and ferry points across the Potomac River. In the 1830s, a railroad to Point of Rocks, Maryland opened north of Waterford and Snickersville Turnpike opened south of the village. Waterford, thus bypassed, was no longer a center for trade. In the years leading up to the Civil War, disheartened by Virginia's reluctance to abandon slavery, Quakers began leaving Waterford and migrating to Ohio. Because the Quakers of Waterford were abolitionists and pacifists the village was harassed by Confederate forces. Many fled north and the population of Waterford dwindled further.

The town unincorporated in 1936. Today the village is largely residential. The Waterford Historic District was listed as a Virginia Historic Landmark in 1969.