First people arrived on Paanajärvi region in 5-6 millenium BC. The ancient population lived by gathering, hunting and fishing. The stone instruments and pottery, found on the shores of Paanajärvi and Pääjärvi Lakes, testify that. The stone chisel, found by peasants in XIX-th century, is now at the exposition of Helsinki museum. After to war there were found 15 ancient stays of different eras (from stone to iron ages).

In the mediaeval times the Paanajärvi region was inhabited by Saami tribes. The worship stones on Kivakka and Nuorunen Mountains are monuments of those times. During road construction near Tavajärvi Lake there was found a buried treasure of Saami silver decorations of XI-XII centuries AD. There are also written mediaeval evidence telling that Paanajärvi – Pääjärvi region was inhabited by Saami from ancient times.

In XII-first half of XV centuries AD Paanajärvi region, as the whole Northern Lapland, was under the rule of Great Novgorod Principality. In 1595 Paanajärvi, as earlier some other Novgorod lands, that became practically "nobody's lands" after ravage of Novgorod by Moscow Prince Ivan III, became the part of Swedish Kingdom.

At first Finns were forbidden to settle at the region. At the same time constant wars between Sweden and Russia forced Karelians to run from Russian part of Karelia to more quiet forests around Pääjärvi and Paanajärvi. For example Sirkeinen (Sergeev) family came to Paanajärvi from Kostamus.

The year 1673 became decisive for the Paanajärvi region. This year the King of Sweden opened the Lapland for new settlment and newcomers were given 15-year tax redemption. In 1769 first Finnish family settled near Paanajärvi. Finn Termänen bought from Karelian Maronov the Kallioniemi farm, that was built at the western part of the lake some 60 years before.

During XVI-XVII centuries Saami were driven to the north. By the end of XVIII century there were five Finnish farms in Paanajärvi region – four in the Swedish side and one on Russian territory.

After the end of a raw of Russian-Swedish wars, by 1809 Peace Treaty, Paanajärvi together with the rest of Finland became a part of Russian Empire. At that time there were around 60 inhabitants in Paanajärvi village.

Finland had exclusive autonomy status within Russian Empire with internal laws sometime quite different from those in the rest of Russia.

After demarcation of the border between Russia and Finnish Autonomous Grand Duchy done in 1842 and 1849 the whole Paanajärvi Lake and nearby territories were attributed to Finland.

During XIX century the population practically had not increased. The five years of poor harvest in succession in 1830's, lack of any harvest in 1867 and a raw of epidemics, coming from the east, prevented any growth of population. In 1868-1870 many inhabitants left Paanajärvi. Only at the end of the century some growth could be seen – almost 450 people inhabited the village.

The Paanajärvi region is generally favorable for agriculture. In the best years the crop was enough not only for living but for sale too. The were a mill at Mäntykoski. Almost all villagers had reindeers.

In 1890 there started forest cutting. Russian Rusanov Forestry Company opened an office in Rajala. The wood was floated by Olanga River.

At the edge of centuries Paanajärvi became popular tourists attraction. Almost 1000 guests visited the lake region every year. Aksel Gallén (in a future a great Finnish artist Akseli Gallen-Kallela) and a well-known photographer Into Konrad Inha were among them. The paintings "The little shepherd from Paanajärvi", "The black woodpecker", "Mäntykoski Rapids", some drawings and sketches were created by Gallen in the summer 1892 during his stay their. The photos by Inha saved to us the views of Paanajärvi at the end of XIX century. In July 1914 Paanajärvi was visited by the writer Ilmari Kianto.

In 1905 there was build a school – the second school in Kuusamo county. In 1906 there stasted a road construction from the south Vuotunki to Paanajärvi.

In December 1917 Finland became independent. Finnish-Russian border was closed and traditional trade links to White See region were broken.

During 1920-th the road from Vuotunki was improved and Paanajärvi became accessible by car. This gave the new impulse to business activity. In 1926 there were opened a bank office and medical center.

In 1934 the new road from the north Liikasenvaara was built, letting to open the tourist roundtrip "The Bear's Circle".

The weather conditions in the 30-th were exclusively favorable for agriculture. The unseen ever crop of rye and even of wheat was gotten.

In 1936 a sawmill was built by Leino. It gave work to 25-30 local inhabitants. The number of tourists increased. A touring boat was cruising the lake. In 1937 the church was built.

Paanajärvi village was best to do in Kuusamo county. It has a church, three schools, a post office, a bank, four shops, medical center, police and boarder guard offices. The population reached 738. Sixty one farms were situated nearby. The main living source was agriculture.

The news about Soviet attack on Finland came in the evening, November 30-th, 1939. The next day all the inhabitants were ordered to evacuate to Kuusamo. Children and women were the first to leave. All the cattle was killed and almost all the buildings were burned down.

After the Winter War 165340 hectares of the territory around Paanajärvi Lake was attributed to Soviet Union. More than 2100 inhabitants became refugees.

Soon after military actions resumed the bigger part of Paanajärvi was freed and by the summer 1942 most of the refugees returned to their smouldering ruins. The ruins began to recover. The sawmill at Rajala started to work again.

In June 1944 the military situation worsened and children and women were evacuated. Soviet troops reached Paanajärvi in the beginning of the autumn and by September 4-th had overcome the opposition of German garrison. In the next day all the inhabitants were ordered to leave within 24 hours. The potato crop was left in the ground.

By Moscow Peace Treaty (September 14-th 1944) Paanajärvi once again becomes Soviet territory and almost for half a century only boarder guards inhabit it.

In Soviet times the water level in Pääjärvi was raised some 10 meters and the remnants of all the villages around it (including Oulangansuu) are now under the water.

In the second half of 1980s there originated plans to use Paanajärvi lake as a reservoir for hydro-accumulating power station and to build a big (for 300 000 visitors a year) mountain-skiing tourist center on the Nuorunen Mountain. To fulfill these plans it was necessary to build a road linking Nuorunen Mountain with Finnish territory and a power line from settlement Pääjärvi. But wide public protest does not allow to implement those projects.

In 1992 The Paanajärvi National Park was organized.