According to researchers at Cabrillo College, the Ohlone Native Americans lived on the cliffs above the main inn building. In those days the creek was as wide as Laurel Street is now, and the Natives fished where the present waterfall is located.

During the Spanish era, the Feliz family had an adobe house at the top of the Laurel Hill and owned the Inn's property. In 1796, the Mission fathers built a grist mill on the property to grind corn. They planted the Matilija poppies which still grow here. The four-foot stone walls that make up part of the inn's foundation are a fragment of the original mill and can be seen to the left of the waterfall's base.

In 1877, R.C. Kirby owned a tannery on this location. He was a man who had accomplished many great feats, including sailing around the Horn on a whaler to join the Gold Rush. He found himself in Santa Cruz at the request of Judge Backburn. The huge water wheel that powered the tannery remained on the site until 1925-26 when the city paved Laurel Street. Part of its foundation can be seen to the left of the falls and behind the porch of the Fern Grotto room.

In 1909, a log cabin was built on the property by Mr.and Mrs.Charles Place. Mr. and Mrs. Place were actors who had a touring stock company. Their cabin was built of logs chinked with cement and it was very small. It was made up of only a living room, dining room, kitchen and two small bedrooms upstairs. In 1911, a silent movie called "Danites" was filmed in the cabin. It was based on a story by Joaqin Miller and produced by the Selig Company. Many stars, including Jack Hoxie, his wife Marian Sikes, and Bill Boyd (later, Hopalong Cassidy) summered here.

When the Place family moved out, in late 1911, the cabin was vacant until bought by Peter Rovnianek. Rovnianek was from Slovakia and he was believed to be the Czar's last representative as Vice Consul in this country. Rovnianek had a small lean-to added on (where the Countess' bedroom is now) and Jesse Grant, son of Ulysses S. Grant, lived there while writing a biography on his father's life.

In 1924, Rovnianek sold the home to Mr. and Mrs. Charles Chandler of San Francisco. Mrs. Chandler claimed to be the Countess Florenzo de Chandler. She added the upstairs, the balcony, the front bedroom and bath, and built all of the stone retaining walls on the property.

In 1942, Lloyd Wright (no relation to the architect) bought the home and established the first restaurant. It was he who named the property "The Babbling Brook". In the years to follow, many restaurants were to come and go. The most successful of which was a French restaurant, also called "The Babbling Brook" and owned by Frances McReynolds Smith. In 1981, she sold the property to the Babbling Brook Associates partnership, which transformed it into a bed-and-breakfast inn. The Frances McReynolds Smith Garden Room is named in her honor.

On November 15, 1981 the Babbling Brook Inn opened with four guest rooms. It was to be Santa Cruz's first bed-and-breakfast inn. Also in 1981, three two-story structures with a total of eight rooms were added beside the brook to give the inn twelve rooms. Each was decorated in a French country style and named after contemporary French artists. Recently, in 2001 the inn underwent renovations. It is now completed with thirteen premiere rooms. The Babbling Brook Inn is owned by the Inns by the Sea company and is proudly featured as one of its own Coastal Inn of Distinction.