The designation Olhão has its origin in the Arabic word "Al-Hain", which means "fountain", or "spring". Successive phonetic and phonologic changes, gave origin to the current word OLHAO. Until 1695, this place was part of Quelfes. In 1765, King D. Jose gave to the seamen of the Place of Olhão the permission to constitute their own brotherhood.

The siege of Gibraltar, from 1779 to 1783, gave the seamen from Olhão the chance to make profits by supplying the besieged with products from the land and from the sea.

The French Invasions were, however, the opportunity for Olhão to assert it selfdom the political point of view. On the 16th June of 1808 the people from Olhão (the Olhanenses) ambushed and defeated an army of Napolean. This deed was decisive for the expelling of the French invasors. In July, a small group of seamen from Olhão navigated as far as Brazil in a coast fishing vessel (the Caique Bom Sucesso) to give King D. Joao VI the above ­mentioned piece of news. The King was so grateful to these men that he elevated the Place of Olhao to becoming a village, in that same year of 1808, with the epithet of Vila da Restauração (Village of Restoration).

In the last half of the 19th century, the trading activity of the seamen from Olhão took them to the Eastern Mediterranean, including the Black Sea. From there they brought the patterns of the typical architecture of those places, which they applied in their homes, thus, having given Olhao the nickname of "the cubic village".

In the first half of the 20th century, the fish canning industry made Olhão a rich village. The first factory appeared in 1881 and in 1919 there were already about 80. From 1960 onwards the fish canning industry started to decay and the village became poorer. In spite of this latter fact, fishing is still the basis of the economy of this municipality.

Olhão is considered the capital of Ria Formosa. It offers good conditions for the development of tourism, especially in the areas connected with the sea and with nautical activities. The municipality presents good conditions for the investment in residential and tourist real estate, mainly in the interior villages. A short distance from Faro (10 minutes), from Tavira (15 minutes) and from the golf courses of Vilamoura (25 minutes) and the new eastern courses, makes this factors guarantees for one secure valuation of the investments in this municipality.

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