The town is named after an old anchorage. The first element is hammer, referring to a number of large rocks, good for mooring boats, called Hamran (Old Norse: Hamarr - steep mountainside). The Hamran were covered up in land reclaiming during the early post-war years. The last element is fest, from Old Norse festr which means 'fastening' (for boats).

Hammerfest claims to be the northernmost city in the world, although the title is disputed by Honningsvåg, Norway. The validity of the claim depends upon one's definition of a city; although Hammerfest is further south than Honningsvåg it has a population over 5,000, which is required by Norwegian law to achieve town status. Barrow, Alaska, population c. 4,000, is further north than both the Norwegian towns, but does not lay claim to the title of northernmost town. Some foreigners may find it strange that either Hammerfest or Honningsvåg claims to be cities, given the small size of both places and it may help to know that the Norwegian language does not distinguish between city and town. The closest translation for either term is the word by, meaning the translation from Norwegian to English is ambiguous. If both Hammerfest and Honningsvåg were to be defined according to old British tradition, neither of them would be considered cities, as neither has a cathedral. Both of them may, however, be considered towns, given the status of both settlements as economic hubs of the surrounding areas and the status as municipal centres.

Hammerfest is, together with Vardø, the oldest town in Northern Norway. The town of Hammerfest is situated on the island of Kvaløya, with road connection to the mainland using the Kvalsund Bridge.