The present-day Coode Island is a remnant of the island created in 1886 when the Melbourne Harbor Trust constructed a direct ship-canal - named after the consultant engineer Sir John Coode - through Fishermans Bend from Melbourne's wharves to Yarraville. By 1909 the tea-tree cover and the swamp had disappeared, and the island was being used as an animal quarantine station and a sanatorium for bubonic plague sufferers. Visiting naturalists noted exotic flora, introduced with ships' ballast. By the 1920s hermits were living in abandoned ships and makeshift huts along the silted-up bed of the old Yarra River. The Larkin Aircraft Supply Co. reclaimed swampy land on the island and constructed offices, an aircraft factory, and an aerodrome. Officially licensed in 1927, it was used by light aircraft until World War II.
With the construction of Swanson Dock (1968), Coode Island shrank to the area bounded by the Maribyrnong and Yarra rivers, Swanson Dock West and Footscray Road. Bulk liquid storage of petro-chemicals began in 1960 on the western half of the island, with a berth in the Maribyrnong River. In August 1991 a spectacular chemicals fire burned over two days, destroying 33 of the 47 tanks and spreading toxic fumes across Melbourne. Plans to move the facility to Point Lillias near Geelong were frustrated by environmental and Aboriginal heritage concerns, and in 2000, to the intense anger of resident action groups and environmentalists, the Bracks Government confirmed Coode Island as the State's major petro-chemical storage, with six companies operating under leases from the Melbourne Port Corporation.