The headwaters of the South Fork and the Table Rock Fork are basalts older than the Columbian basalts. They are part of the Sardine series volcanic. As the two rivers forks join to form the main stem of the Molalla River, they begin cutting into the Stayton lavas. The basalts form narrow canyons where column rosettes and defined basalt columns can be seen mostly on the east side of the river.

The west side of the river has an overlying layer of the Molalla formation. Carbon dating of fossil leaves, which are abundant in this area, has placed it in the upper Miocene epoch, about 12 million to 5 million years ago. The river cuts deeply into this formation creating narrow canyons and beautiful rock outcrops.

An extensive system of trails existed along the Molalla River. These trails provided a trade route between peoples of the Willamette Valley and those of Eastern Oregon. During the early 19th century, the area around the river was populated by the Molala people.

The Molala (also Molale, Molalla, Molele) were a people of the Plateau culture area in central Oregon, United States. They are one of the Confederated Tribes of the Grand Ronde Community of Oregon, with 141 of the 882 members in the 1950s claiming Molala descent.

The Molalla Native Americans used one such trail in the early 1800s. It is now called the Table Rock Historic Trail.

During the 1920s this same trail was utilized by Native Americans from the Warm Springs Reservation to reach traditional huckleberry picking areas near the Molalla River and Table Rock.

Starting in about 1840, European-American settlers began farming in the bottomlands along the lower Molalla. Spurred by the passage of the Donation Land Claim Act, the influx continued, and by 1860 there were 75 households in the Molalla area. Wheat was the most common crop, and these early settlers also cultivated potatoes and root vegetables such as turnips and cabbages and planted apple trees. They fished, hunted, gathered huckleberries, and kept sheep, cows, pigs, and chickens.

Gold mining occurred along the Molalla after the discovery of placer gold in 1860. Many claims were filed during the next 40 years. Four mining companies, of which the Ogle Mountain Mining Company was the biggest, had operations in the watershed by the early 20th century. The company operated a mine along Ogle Creek, a Molalla tributary, between 1903 and 1915.

In the 20th century, the watershed became an area of intense logging. Timber companies built forest roads and a spur railroad, set up timber camps, constructed splash dams, and used the river and Milk Creek for transporting logs. Between 1941 and 1945, hundreds of log trucks passed through Molalla every day.

Today, logging and recreational use are the primary activities in the upper reaches of the Molalla River.