The years of industry created wealth in the town, and substantial Victorian houses and mercantile buildings were constructed. By 1859, a woolen textile mill was operating, in addition to factories that produced furniture, marble, sashes and blinds, iron castings, carriages, cabinetware, rifles, harness, shoe pegs and organs. Two railroads converged in 1849 at Bellows Falls, helping it develop into a major mill town. In 1802, entrepreneurs built the first paper mill in Windham County. The canal is now part of the Bellows Falls Downtown Historic District. A fish ladder allows salmon to continue upstream at times when the bulk of the river's flow is diverted to the canal.

The canal's bottom was lined with concrete, and the sides secured with rip-rap set in concrete.

When the mills replaced water power with electrical power, the canal was widened again in 1927–28 to 100 feet, and the water was used to power turbines to generate electricity. By 1908 it was delivering 15,000 horsepower to the mills. In 1874 the canal was enlarged to 75 feet wide and 17 feet deep. River traffic declined after railroads were built to the Connecticut Valley in 1849, and by 1858 the canal had become used exclusively for water power to run the paper mills which became established there. The original canal was 22 feet wide and four feet deep, and had 9 locks, each 75 feet long and 20 feet wide, which allowed shipping to go around Great Falls by being lifted 52 feet (16 m) around the gorge. The Bellows Falls Canal, one of the first canals built in the United States, was dug by a British-owned company from 1791 to 1802. Two bridges currently link Bellows Falls to New Hampshire: the New Arch Bridge (also called the Church Street Bridge), which replaced the Arch Bridge in 1982, and the Vilas Bridge.

It was the only bridge across the river until 1796, when another was built at Springfield, Massachusetts. Later the settlers renamed the town for Colonel Benjamin Bellows, a landowner, but kept the name Great Falls for the waterfall, a translation of their Abenaki name, 'Kitchee pontegu.' In 1785, Colonel Enoch Hale built at the falls the first bridge over the Connecticut River. The community was settled in 1753 by colonists of English descent, who called it Great Falls. Rockingham Town Hall, which holds the Opera House, was built in 1926 on The Square, and is part of the Bellows Falls Downtown Historic District, designated in 1982.

Bellows falls opera house