Freeland is located at the head of Holmes Harbor in South Whidbey Island, 17 south of Coupeville. The site was platted in the 1800s by real estate promoters who called it St. Louis, but no town resulted. At one brief period the area was called Newell, which was the name of the nearest post office.

The town was named for the Free Land Association, a group of socialists from South Dakota who intended to make land available to its members practically free of cost, paid for through cooperative enterprises. In 1899, George Washington Daniels, Henry L. Stevens and Henry A. White formed the Free Land Association, platted a town made up of five-acre lots and, on January 12, 1900, filed the incorporation papers for Freeland. It was intended that all the members of Freeland work for the common good, but the settlement failed to coalesce as a socialist community and the Free Land Association went bankrupt in 1920. According to the U.S. Census Bureau, in the year 2000, Freeland had a population 1,313.

Perhaps, the most interesting event involving Freeland in the early days was a proposal to build a canal one-and-a-half-miles across South Whidbey Island. In the early 1900s, a venture capital group known as The Pennsylvania Syndicate, took options on nearly ten thousand acres of land between Holmes Harbor and Mutiny Bay on Admiralty Inlet. Their plan was to construct parallel train tracks and a sea-level, salt-water canal to allow ships and barges to be towed between Saratoga Passage and Admiralty Inlet, saving a trip around Possession Point. But anyone familiar with the area knew the savings in time and effort would be negligible and the project was abandoned.