Although the 1890s ended in a bust, by the beginning of the 1900s Port Townsend was able to maintain economic stability by promoting the development of Puget Sound artillery fortifications. Fort Worden, along with Forts Flagler and Casey, comprised the Iron Triangle, built by the US Army as a deterrent to invasion by sea.

The construction of a pulp and paper mill in 1927 helped sustain the community through the Great Depression. Today, that same mill, operated by the Port Townsend Paper Corporation, is still the single largest employer in the county.

By the 1950s the forts had closed. The big guns, never fired in anger, were hauled away. As Port Townsend celebrated its centennial, the community again faced a lean economic period.

During the ups and downs of the city's development, the buildings and homes of the city's first boom remained intact. In 1976, the downtown waterfront district and the residential area on the bluff were designated a National Historic District. Later, Fort Worden, now a state park, and the city of Port Townsend were designated National Landmarks. The city is further recognized as one of only three Victorian Seaports on the National Register. The other two are Cape May, New Jersey and Galveston, Texas.)