A Portuguese Water Dog is first described in 1297 in a monk’s account of a drowning sailor who was pulled from the sea by a dog with a "black coat, the hair long and rough, cut to the first rib and with a tail tuft".

The PWD was a breed on the verge of extinction when, during the 1930s, Dr. Vasco Bensaúde, a wealthy Portuguese Sephardic Jewish shipping magnate, began to seek out fishermen's dogs and utilize them in a breeding program to re-establish the breed. Bensaúde's kennel was named Algarbiorum, and his most famous dog was Leão (1931-1942), a very "type-y" fisherman's stud dog who was bred to so many different females that about half of the pedigreed Portuguese Water Dogs in existence can trace their lineage back to him. Bensaúde was aided by two Portuguese veterinarians, Dr. Francisco Pinto Soares and Dr. Manuel Fernandes Marques. His work was carried on by Conchita Cintron de Castelo Branco, to whom he gave his last 17 PWDs and all his archives.

Dr. António Cabral was the founder of the Avalade kennels in Portugal. Ch. Charlie de Avalade (Charlie), a brown-coated dog, and C. B. Baluarte de Avalade (Balu) were two of his many famous PWDs. He registered his first PWD in 1954, after Bensaúde had pioneered the re-establishment of the breed in Portugal. Cabral worked with Carla Molinari, Deyanne Miller, Sonja Santos and others to establish PWDs in the US. The "Mark of Cabral" is a triangular shape of different color/textured hair, usually a few inches from the base of the tail. You can see it more easily on a fresh lion clip -- it can look like the clipper got too close.

Deyanne Miller is the single person most responsible for the rise of the PWD in America. In 1972, the Millers, along with 14 other people, formed the Portuguese Water Dog Club of America, Inc. (PWDCA). She worked with dogs from both the Cintron and Cabral lineages to establish a stable genetic pool of PWDs in the United States at her Farmion kennels. Another early US breeder of PWDs was the actor Raymond Burr.

The closest relative of the PWD is widely thought to be the Standard Poodle. Like Poodles and several other water dog breeds, PWDs are highly intelligent, can have curly coats, have webbed toes for swimming, and do not shed . However, Portuguese Water Dogs are more robustly built, with stout legs, and can have a wavy coat instead of tightly curled. Also, fanciers generally do not dock their tails, whereas Poodle tails are customarily docked. Portuguese Water Dog eyes are consistently brown, and their coats can be black, reddish brown, white, or black and white.

PWDs have a single-layered coat that does not shed (see Moult), and therefore their presence is tolerated extremely well among many people who suffer from dog allergies. Some call PWDs hypoallergenic dogs, but any person with dog allergies who seeks a dog with these qualities should actually spend time with the animals before purchasing, to test whether the dog is truly non-allergenic to them.

Most PWDs, especially those shown in conformation shows, are entirely black, black and white, brown, or silver-tipped; it is common to see white chest spots and white paws or legs on black or brown coated dogs. "Parti" or "Irish-marked" coats, with irregular white and black spots, are rare but visually striking. "Parti" dogs are becoming more common in the United States. However, in Portugal the breed standard does not allow more than 30% white markings. Overall, white is the least common Portuguese Water Dog color, while black with white markings on the chin ("milk chin") and chest is the most common color combination.

The black portions of Portuguese Water Dogs have a bluish tinge to their skin that may be hard to notice underneath their black hair. Predominantly white areas have pink skin underneath and are more sensitive to exposure to the sun than black or brown areas. White hair is finer than black.

Depending on their genetic heritage, many brown PWDS, as well as a few lineages of black ones, gradually turn gray over their entire bodies as they age, with the possible exception of their ears and paws. Once begun, this color change, which is sometimes called "blueing", continues throughout the dog's life; it is caused by the growth of white hairs among the colored ones, much like the greying of a human being's head or beard hair."