Grand Bahama was inhabited in prehistoric times by the Stone Age Siboney people, but there remains only a few artifacts from that time period. By the time Columbus reached the Caribbean in 1492, the Siboney were long gone, replaced by the Arawak, who had migrated from South American via canoe. Within a hundred years of the arrival of the Spanish, the native population had virtually disappeared due to lack of resistance to European diseases, conquistador-led massacres, and enslavement of natives for work in ore mines. As a result, little is known about the Lucaya tribe that inhabited the Grand Bahama Island.

The Spanish took little interest in colonizing the Bahamas, which led the islands to be claimed by England in 1670. A plantation system was set up, but this fell apart in 1834 when Britain outlawed slavery in all its colonies. For the next hundred years, Grand Bahama remained a remote and undeveloped island. The only brief booms in its economy coincided with the Civil War and Prohibition in the United States, when residents of the islands were able to make money by smuggling weapons and alcohol, respectively, to the States.

In 1955, an American financier, Wallace Groves, received permission from the Bahamian government to build a town on Grand Bahama in order to stimulate tourism. By 1962, the city, which had been named Freeport, was growing rapidly and already had a tourist center and a harbor at Port Lucaya. Today, Freeport is the second largest city in the Bahamas (after Nassau, the capital) and Grand Bahama is the second most popular tourist destination on the Islands.