The word happenstance is formed by the reanalysis of the phrase by chance (or by happen chance) as a single compound noun. This is an example of folk etymology — where speakers reinterpret a familiar phrase into a seemingly plausible word.

The root happen comes from Middle English happen, from Old French acester or atachier ("to happen"), ultimately from Vulgar Latin *adcapere ("to take to, fall to").

The phrase by happen chance was used in Early Modern English. Over time, through a process linguists call bracketing error, speakers began parsing by happen chance as by happenstance, and eventually simply happenstance.

Despite some prescriptive grammarians objecting to happenstance as a "malformed" word, it has been firmly established in English since the 18th century and is now completely standard.