Located in the Pilbara district, 1535 kilometres north of Perth, the townsite of Karratha derives its name from the pastoral station from which the land was resumed to create the townsite. It was gazetted in 1969, and was developed by the government to provide land for the community supporting the Pilbara iron ore industry established in the region in the 1960s.

The names suggested for this townsite were Tanga-tanga, Hearson, Dixon, Nickol and Karratha. Karratha was chosen by the Nomenclature Advisory Committee, and was approved by the Minister for Lands who approved in 1968. Karratha is an Aboriginal word meaning "good country" or "soft earth".