European occupation of the area commenced during the 1830s when squatters took up large pastoral runs around Bacchus Marsh. Gold was first discovered at what is now the township of Blackwood, in 1851. The area was rich in alluvial gold and large nuggets were found chiefly in the bed of the Lerderderg River and its tributaries in what is now the Wombat State Forest and Lerderderg State Park.
Miners sank small holes and used sluice boxes, pumps and water wheels. Later, water races were cut to provide water to sluice finds on the flats, gullies and hillsides. A tunnel was cut through a spur to divert the Lerderderg River and enable mining along a 500m section of the dry riverbed. Quartz mining followed and many deep shafts were sunk. Ore was treated using steam and water powered crushers. These mines peaked by the 1890s, with little mining after 1910. Relics of goldmining can be found throughout the state forest and the park in the form of water races (many of these races now form the routes for walking trails), eroded gullies, mine shafts, the diversion tunnel, mullock heaps, and remains of stone dwellings and stone walls.