Arctic sea‐ice extent (SIE) has declined drastically in recent decades, yet its evolution prior to the satellite era is highly uncertain. Studies using SIE observations find little variability prior to the 1970s; however, these reconstructions are based on limited data, especially prior to the 1950s. We use ensemble Kalman filter data assimilation of surface air temperature observations with Last Millennium climate model simulations to create a fully gridded Arctic sea‐ice concentration reconstruction from 1850 to 2018 and investigate the evolution of Arctic SIE during this period. We find a decline of ∼1.25×106 km2 during the early 20th‐century warming (1910–1940). The 25‐year trends during this period are ∼33–38% smaller than the satellite era (1979–2018) but almost twice as large as previous estimates. Additionally, we find that variability of SIE on decadal timescales prior to the satellite era is ∼40% greater than previously estimated.