The family of John Gage lived on the Jubilee Farm in a red brick house built about 1875, called The Retreat. When the farm was sold to the City, the 5.26 hectares (13 acres) of the Gage property that held The Retreat and a small garden stayed in the Gage Family. The building and land were kept for the lifetime of Miss Eugenia Helen Gage, the unmarried only child of Robert and Hannah Gage, who still lived there. However, it was understood that when Miss Gage died, the City would also take ownership of The Retreat and surrounding land.

Miss Gage died in March 1952. Her will asked Judge William Schwenger to spend up to $25,000 to get an agreement with the City to seal The Retreat shut forever with everything in it. She apparently believed that the spirits of the Gage Family would some day return to their home to live. However, as the Judge felt her idea was unrealistic, he organized the transfer of ownership of the house to the City that same year. Everything inside was sold in public auction.

When the City received The Retreat it was in very bad shape. The roof leaked, the house was not wired for electricity and the plumbing was old. The City was going to tear it down but, after some thought, decided to renovate it instead. In December 1952, the Parks Board moved into The Retreat to use it as their office and information centre. A four-room apartment was also renovated on the second floor for Mr. Harry Smith, the caretaker of the tennis courts, and his wife Irene. Even after Mr. Smith retired in 1973, the Parks Board allowed the couple to continue to live there, until the house was turned into the children's museum.

The idea for a Hamilton children's museum was first suggested by the Hamilton Historical Board in 1962 as a possible Centennial project for Dundurn Castle. In 1970, Marnie Paikin wrote the Board to refresh this idea, supporting it with information on the success of a children's museum in Boston. The Department of Culture and Recreation took over The Retreat from the Parks Board in 1974, and decided to make it available for community activities. They organized two committees to look into the possibilities of the building housing either the children's museum or the Hamilton Arts and Crafts Guild. The children's museum was their choice in the end.

Children were first able to visit the Hamilton Children's Museum at The Retreat in 1978. The museum was officially opened on July 22 the following year, during the International Year of the Child. Marjorie Denton worked as the first curator of the museum. The Friends of the Hamilton Children's Museum, a dedicated group of volunteers, became responsible for fundraising and assembly for the different displays.

The museum was set up as an interactive cross between a library and a classroom. Exhibits and displays are meant to be touched and used, not just looked at. Children learn about the world by doing different activities and experiencing through all five senses. Three exhibits are offered each year, with each exhibit needing one month to set up and three months to run. On an average day, four or five classes will visit the museum to look at the latest exhibit. Examples of topics the museum has examined are medieval life, ancient Egypt, fossils, dinosaurs, the Native American Iroquois, the experience of being physically impaired, and different countries around the world. Study kits on various topics are also available on one-week loan, and holiday programs are popular when school is closed.

Very few other children's museums exist in Canada, making the Hamilton Children's Museum very popular with children from outside of the city as well. Although it is the smallest children's museum in the world and holds only about forty or fifty people at a time, attendance has grown from 7,000 in 1978, to 27,000 in 1994. In Hamilton, only Dundurn Castle has more visitors each year.