The town is located at the mouth of the Grey River. It stands on narrow coastal plains close to the foot of the Southern Alps. In clear weather, Mount Cook can be clearly seen to the south from near the town. The mouth of the river divided the town into three areas: Blaketown, close to the river's mouth on the south bank; Karoro, to the southeast, sepaprated from Blaketown by a series of small lakes; and Cobden, formerly a separate town, on the river's north bank.
It is on State Highway 6, which connects it with Hokitika in the south and Westport in the north. It also stands at the terminus of State Highway 7, which runs through Dobson and Reefton, eventually reaching north Canterbury and Christchurch via Arthur's Pass.
The Grey District also includes the settlement of Runanga.
Maori had lived in the area for considerable time before European settlement, and called it Mawhera (still an alternative name for the Grey River). The first European to visit the site of what is now Greymouth was Thomas Brunner in 1846. Brunner discovered coal in the Grey valley, and several places in the region (notably the town of Brunner and Lake Brunner) bear his name. Brunner himself named the Grey River after prominent 19th century New Zealand politician Sir George Grey.
Greymouth has a history of coal and gold mining. Then the gold industry started to decline, forestry became a new staple industry, and fishing is also important to the town, despite the fact that the entrance to the Grey River has a notoriously dangerous sandbar. Ecotourism is also becoming a major money-earner for Greymouth.