Greenwood has a complex history. The area was settled by Loyalists in the 1770's in the aftermath of the American Revolution, when approximately 60,000 Loyalists migrated to Canada in support of the Crown. Present day Greenwood was originally two communities, Greenwood Square, so named because of the majestic pine trees, and the popularity of the name among Loyalists, and the original Kingston Village (not to be confused with Kingston Station which was two kilometres North). This community, built between the Fales and Annapolis Rivers was the commercial hub of the area serving rural farmers from Tremont, Harmony, and North Kingston and Melvern Square, furniture stores, blacksmith and cooperage shops as well as sawmills, a post office and several other shops, served the residents until the arrival of the railway line in the 1870's.
In 1940, Greenwood was selected as the site to built the Royal Air Force training base because of the topography of the land, and the fog free climate. A total of fifteen parcels of land totalling some 672.67 acres was purchased from local landowners. Later more land was purchased as the base expanded to accommodate the housing requirements of the personnel. Construction began in the fall of 1941 for building RAF Station Greenwood to train aviators for the second World War. The RAF Station became the RCAF Station in 1944 and in 1968 the station became Canadian Forces Base Greenwood.

The base brought prosperity to the Annapolis Valley and Greenwood in particular. Greenwood incorporated under the Village Services in 1961 and assumed the name Village of Greenwood. Once again Greenwood is the commercial hub of Western Kings

.