Nicholson is a rural village on the Princes Highway, east Gippsland, 250 km east of Melbourne and 10 km east of Bairnsdale. It is on the Nicholson River which was named by the explorer Angus McMillan in 1840 after Charles Nicholson, a Sydney physician with interests in land and the pastoral industry. (McMillan's exploration was financed by Lachlan Macalister, a New South Wales pastoralist with holdings near Sydney and in the Monaro region, and McMillan also named the Macalister River west of Bairnsdale.)

In the 1870s farm settlement began to displace pastoral runs around the Gippsland Lakes. Nicholson primary school opened in 1876 and at about that time a punt began operation across the Nicholson River. A post office opened in 1885 and in about 1890 a creamery opened there in conjunction with dairy interests at Johnsonville and Bruthen. There was also a Union church by 1890.

In 1916 the railway was extended east from Bairnsdale, crossing the Nicholson River on a 180 m bridge and turning north through Mossiface to Bruthen. The bridge is of unusual complexity, consisting of concrete piles on unstable silt, surmounted by timber trestles and steel girders. It was a Victorian Railways engineering triumph.

The wide Nicholson River lies in a flood plain. Its banks are lined with boat sheds and anchorages and there is a boat storage facility. The railway closed in 1987 and the line is a rail trail. Nicholson has a hotel-motel, a general store, post office and a caravan park. The school had 45 pupils in 2014. Nicholson's census populations have been:

area census date population
Nicholson 1911 142
  1933 155
  1961 143
Nicholson and environs 2011 955

At the 2011 census, the median age of residents was 51 years (Victoria 37 years).