Podocarp forest covered most of the peninsula at the time of settlement, apart from the drier northern hills (now known as the Port Hills) surrounding Lyttelton Harbour where there was extensive open-tussock grassland. The bush was dense in the valleys and lower slopes, but gave way to scrub formations and patches of bush on or near the summits. Valuable timber trees, such as black and white pine and totara, were abundant in many places and sawmilling occupied many of the early settlers. The peak year for timber production was probably 1870; by that time 75 per cent of the forest had been cut over or cleared. By 1900 almost the whole forest cover of 140,000 acres had been removed and only a few scattered patches, in total less than 150 acres, now remain.

With the removal of the bush, dairying was found most suitable in the valleys, and sheep grazing on the upland. Market gardening is carried on in the valleys overlooking Christchurch and there are orchards at Governors Bay. Banks Peninsula was for many years (until about 1950) noted for its grasses and, particularly, cocksfoot. At the present day grazing of sheep for fat and store lambs and wool is carried on in the uplands, and beef cattle are run in the gullies. Dairying has declined over the last 20 years and there are now only a few cheese factories on the peninsula.