The first settlement in New Hampshire, established by David Thompson in 1623 at Odiorne's Point, and named Pannaway. Originally part of Portsmouth, it was incorporated as a parish of New Castle in 1726. The town is named for the borough of Rye, a flourishing English Channel town. Rye's eight-mile length of coastline is dotted with old names such as Wallis Sands, Jenness Beach, Locke's Neck, Ragged Neck, Rye Harbor, and Odiorne Point. In 1876, four of the Isles of Shoals were annexed to the town, the only New Hampshire town with Atlantic islands. The remaining five islands belong to Maine.

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