Sitiawan grew from a small settlement with rubber tapping and latex processing as its main economic activities. The town was flanked by various Chinese settlements comprising mostly of the descendants of immigrants from the Kutien district of Fuzhou, China. The original settlers were encouraged by the British to plant rice. The settlers, however, found that paddy-planting is not suited to the soil of the region and so they switched to livestock farming before discovering that the land was much better suited for rubber plantations.
The rapid development of urban settlements saw the plantation and estate areas develop, and eventually converted into residential and commercial areas. In the 1980s, a large remainder of the rubber estates underwent mass conversions into oil palm plantations, due to better yield and profits compared to rubber sheets and latex. Oil palm is also a much less labour-intensive crop when compared to rubber, as rubber needs to be tapped regularly.
Tourism has not been a major economic activity, but the town centre derives some economic advantages from its close proximity to Pangkor Island which is a famous niche tourist destination.
The development of the town had been rapid in the 1990s. One of the main reasons was the establishment of the Royal Malaysian Navy’s Naval Base in Lumut, approximately 10 km from the town centre. The Naval Base is currently the largest in Malaysia. The base has acted as a catalyst for the development of commercial activities in the town, serving both the residents of the base and sailors visiting from other countries.