Between 1242 and 1246 the Moors took possession of this then small-fortified hamlet and placed it under the control of nearby Silves. The location was formally declared a town only to be severely destroyed by the earthquake of 1755. It was in this town in 1797 that the notorious bandit José Joaquim Sousa Reis known as Remexido was born. Commanding a fierce band of followers his acts are recoded as a mixture of good and bad legends.

Most of the Algarve and to the north the neighbouring Alentejo district suffered by his hand. He died before a firing squad in 1838. The town of Lagoa has since grown as an administrative town for the area that once lived off its abundant agricultural products. Within the town are a number of long buildings with double doors that open into courtyards, off which are often more than just a large storeroom with a suitable dwelling. Another building of interest is the Convento do São José which was built in 1713 and survived the earthquake of 1755. It is now used by the local Council as a location for art exhibitions and has a small theatre for cultural events. Inside is a turn-box door which was in previous times used for passing unwanted babies to the nuns. The mother would place the baby and any small possessions on a shelf and communicate through a small aperture with the nun on the other side. The revolving door delivered the baby to the nuns without the mother having to disclose her identity. In August of every year an important commercial and rural produce Fair named Fatacil is held in the town, exhibiting products from all over Portugal.