Diu town was historically part of the Saurashtra region of Gujarat and an important port on the trade routes of the Arabian sea and Indian Ocean.

In 1535 Bahadur Shah, the Sultan of Gujarat, concluded a defensive alliance with the Portuguese against the Mughal emperor Humayun, and allowed the Portuguese to construct the Diu Fort and maintain a garrison on the island.

The alliance quickly unraveled, and attempts by the Sultans to oust the Portuguese from Diu between 1537 and 1546 failed. Having repented of his generosity, Bahadur Shah sought to recover Diu, but was defeated and killed by the Portuguese, followed by a period of war between them and the people of Gujarat.

From the 18th century, Diu declined in strategic importance, due to the development of Bombay.

Diu remained in the possession of the Portuguese from 1535 until 1961, when it fell to troops of the Indian Union, which invaded all of former Portuguese India under Operation Vijay.