Although North Laguna was a part of the San Joaquin Rancho, downtown Laguna and South Laguna were never part of a Spanish or Mexican land grant but remained government land available for homesteading. Through the Timber-Culture Act of 1871, migration to the Golden West was encouraged. Families began to arrive and stake out their 160-acre claims and plant the required ten acres of trees - in Laguna's case always the Australian eucalyptus. The groves planted in the 1880's helped form the character of Laguna and added much-needed shade, although as lumber they were virtually useless. The groves grew so prodigiously that in the 1910's, trees had to be cut down by the dozen to carve out space for the growing community.

In 1871, Eugene Salter, the first American settler of South Laguna, claimed part of Aliso Canyon. He soon moved away and his 152 acres and one-room shack were claimed by George and Sarah Thurston. They came from Utah with six of their eventual thirteen children. Their three-year old girl was stolen by Indians on the journey and was never found. Their son, Joseph Thurston, chronicled the family's life and times in "Laguna Beach of Early Days" (1947). George Thurston raised vegetables and melons and sold them in Los Angeles, which was then a five day trip by wagon. The family name is remembered in Thurston Intermediate School, Thurston St., and Sarah Thurston Park in Laguna Canyon

The Brooks brothers, William and Nathaniel, arrived and settled in 1876. Both are referred to as the "father of Laguna" depending on which source is cited. They were Laguna Beach's first homesteaders - the first pioneers to stay longer than one summer in a tent. William H. Brooks came from Downey on a hunting trip to Laguna, following an old Indian trail though the Canyon. Later he filed on the 169.24 acres at Arch Beach (now Diamond St.) and laid out a subdivision. He was also Laguna's first stagecoach driver. Nathaniel Brooks brought water from Bluebird Canyon through a series of pipes and tunnels to Arch Beach. They temporarily sold out to another pioneer, Hubbard Goff (remembered in Goff St. and Goff Island). In 1886 he opened the first hostelry in Laguna, the Arch Beach Hotel.

Laguna Beach is also home to the internationally known Festival of the Arts - Pageant of the Masters. The first pageant ever held in Laguna was an Indian pageant promoted by Isaac Frazee. It was called Kitshi Manido and was held in the large eucalyptus grove at sleepy Hollow (corner of Catalina and Arroyo Chico streets). The second Kitshi was held in 1927 in Laguna Canyon on the Boys Club property. In 1932, Roy M. Ropp conceived of the idea of a pageant and art festival. El Paseo (a little street by Hotel Laguna) was used as the site. Booths were set up and a stage was built on which people posed against painted backdrops to recreate great works of art. Eventually, James Irvine donated a small canyon for the pageant, and on the tenth anniversary of the festival, Irvine Bowl was dedicated.