Woodway was officially incorporated on February 26, 1958, in an effort to protect the heavily forested area from development and avoid annexation by Edmonds.
Lot sizes were deed restricted to a minimum of 2 acres (though existing smaller lot sizes were grandfathered) and also mandated nunneries for lots larger than 10 acres as a way of grandfathering in the existing convent, Rosary Heights, mother house of the Edmonds Dominican Sisters (originally built as the estate of Boeing vice-president Philip G. Johnson).
The city was named for its natural setting by a real estate developer.