Ismaïlia was founded in 1863, during the construction of the Suez Canal, by Khedive Ismail the Magnificent, after whom the city is named. Following the Battle of Kafr-el-Dawwar in 1882 the British established a base there.
The head office of the Suez Canal Authority is located in Ismaïlia at the shore of Lake Timsah. It still has a large number of buildings dating from British and French involvement with the Canal. Most of these buildings are still used by Canal employees and officials.
During World War I the British had an air base there and the Battle of Romani took place nearby.
In 1973 the Battle of Ismailia took place in the city.