Bethlehem Township was settled by Europeans as early as 1730. It became a part of Bucks County in 1737, the year of the famous Walking Purchase. The Township of Bethlehem came into existence in 1746. At that time, it was a political division of Bucks County, Pa. It got its name from the village of Bethlehem, which at that time was within the Township boundaries. The name "Bethlehem" was originally chosen by the German Moravian Brethren on Christmas Eve, 1741.
On March 10, 1746, thirteen spirited residents petitioned the Bucks County Court for the formation of the Township. The petition was accepted in Newtown. The Township had within its area Upper and Lower Nazareth Townships, and the Boroughs of Bethlehem and Freemansburg. It included the Lehigh River, Monocacy Creek and several small streams; among these was the "Nancy's Run" or Nancy Run Creek. This Creek was named for an old woman named Nancy who worked as a fortune teller and became quite famous in the neighboring regions. She lived in a small log cabin half a mile up the creek from its mouth where Willow Park road crosses.
The population of Bethlehem Township in 1780 was 1,375. Territorial increase in population is usually the result of industrial expansion. Such was the case in Bethlehem Township when in 1806 George Butz built a grist mill along the Nancy Run. Soon after, a group of dwellings sprang up and the area became known as Butztown. The mill was later owned by R.T. Schweitzer who tore it down and rebuilt it within the old walls. Today the Keystone Pub (formerly the Butztown Hotel) stands on that site.