The town has a picturesque, white-painted town center with irregular streets climbing steep hills around the harbor. The natural beauty of the area makes it a popular tourist destination. The municipality includes numerous islands, which makes it a very popular place in the summer for boaters, who can easily find an island or an inlet for themselves which provides peace and quiet. The number of people in the county at least double in the summer, due to vacationers. There are approximately 1,700 summer cottages ("hytter") around the fjord. Tvedestrand has over 2,000 buildings that are more than 100 years old.
The town of Tvedestrand was established as a municipality on 1 January 1838 (see formannskapsdistrikt). On 1 January 1960, the rural municipalities of Dypvåg (population: 1,805) and Holt (population: 3,759) were merged with Tvedestrand (population: 868) to form a new municipality named Tvedestrand.
On 1 January 1962, the Strengereid area (population: 375) of Tvedestrand was transferred to neighboring Moland municipality. Then on 1 January 1964, the Holtegården area (population: 5) was transferred from Moland to Tvedestrand. The uninhabited Folevatnet area in Tvedestrand was transferred to the municipality of Risør on 1 January 1984.