The town is located on the Capel River and is approximately 19 metres (62 ft) above sea level. Capel has a Mediterranean climate, with hot dry summers and cool wet winters. Daily temperatures range from 13 °C to 40 °C in summer, and from 5 °C to 27 °C in winter. Average annual rainfall is about 830 mm.
Historically, Capel is a farming area; traditional agricultural pursuits include dairy and beef. In recent times, Capel has become popular for hobby farms, and a number of innovative agricultural pursuits have been introduced, including alpacas, viticulture, aquaculture and growing of blue gums. There is also some mining of mineral sands in the Shire, and tourism is increasingly important to the Shire's economy.
The Capel area was originally inhabited by the Noongar Aboriginals. It was settled very early in the history of colonial Western Australia. The Capel River was visited by Frederick Ludlow in 1834, but it was not given an English name until the Bussell family settled in the area. The name honours Capel Carter Brockman (1839–1924), daughter of John Bussell (1803–1875), who was named after a Miss Capel Carter, a cousin of the Bussells in England with whom Bussell family members corresponded. In the 1830s a number of settlers followed the Bussells into the area, and both James Stirling and John Hutt, (the first two Governors of Western Australia) took up land in the region. Plans to establish a townsite in the area were first mooted in 1844, but the site was not surveyed until the 1870s and lots were not sold until 1897. Initially the town was named Coolingnup, which is the Noongar name for the place; the name was changed to Capel in 1899.
The population of the town was 91 (44 males and 47 females) in 1898. According to the 2016 census figures, the population of the Town of Capel was 2,509, and the population of the Shire of Capel was 17,123.
Westralian Sands was established in 1954 but commenced operations in 1959 when it started mining and processing the Yoganup deposit just north of the town. Another company, RGC, operated a mine to the south of the town. In 1998 both companies merged to form Iluka Resources which continues to operate ilmenite mines around the area and produce synthetic rutile at the processing facility to the north of the town along the Bussell Highway.
The climate is hot-summer Mediterranean climate (Köppen: Csa), at a certain distance from the headquarters, Forrest Beach has the warm-summer version as in Busselton or southern California (Csb), delimiting the northern limit of the second climatic zone on the Australian coast.
- Australian Bureau of Statistics (27 June 2017). "Capel (State Suburb)". 2016 Census QuickStats. Retrieved 29 October 2019.
- 'Brockman, Capel Carter (1839–1924)', Obituaries Australia, National Centre of Biography, Australian National University, accessed 7 April 2013.
- Freda Vines Carmody (1966) 'Bussell, John Garrett (1803–1875)', Australian Dictionary of Biography, Volume 1, (MUP)
- Western Australian Land Information Authority. "History of country town names – C". Retrieved 8 June 2007.
- "Population of Western Australia". Western Mail. Perth, Western Australia: National Library of Australia. 22 April 1898. p. 23. Retrieved 28 May 2012.
- "2016 Census, Australian Bureau of Statistics" Accessed 31 January 2020.
- "Interactive Australia / New Zealand Koppen-Geiger Climate Classification Map". www.plantmaps.com. Retrieved 6 March 2019.