Originally known as Hog Bay due to the pigs released by French Commander Nicholas Baudin, Penneshaw was named after a combination of the names of Dr. F.W.Pennefather, private secretary to Governor Jervois, and Flora Louisa Shaw, The Times colonial editor, a visitor to Government House.
South Australia's first modern seawater desalination plant was established at Penneshaw in the 1990s, to supplement the town's limited dam water supply.
In 2012 the Penneshaw jetty was extended to provide a cruise ship tender vessel landing facility to accommodate growing numbers of short-term visitors arriving by cruise ship. In the 2014-15 season, seven cruise ships landed passengers at Pennseshaw with eight or nine ships expected the following season.
Penneshaw includes the following places that are listed on the South Australian Heritage Register - Christmas Cove, Frenchman's Rock Monument and Penneshaw Cemetery.
As of June 2011, the number of little penguins in the section of the colony which is monitored by the Penneshaw Penguin Centre appears to have declined over the prior 10 years. In 2008, the population was 216 birds.
Restoration work to provide improve habitat for little penguins near Penneshaw is ongoing. As of 2013, an 800m coastal strip between Frenchman’s Rock and Baudin Conservation Park is the focus site. Works include the removal of weeds, planting of native plants and installation of nesting boxes.
In July 1984, two dogs killed 80 penguins at the Penneshaw foreshore in a single night. The mortality event reduced the population there by almost half. A dog attack at Penneshaw in March 2003 resulted in over 30 penguins being killed.
Penneshaw is located within the federal division of Mayo, the state electoral district of Finniss and the local government area of the Kangaroo Island Council.