Colonized by the Portuguese in the 16th century, Macau was the first European settlement in the Far East. Pursuant to an agreement signed by China and Portugal on 13 April 1987, Macau became the Macau Special Administrative Region (SAR) of the People's Republic of China on 20 December 1999. In this agreement, China promised that, under its "one country, two systems" formula, China's socialist economic system would not be practiced in Macau, and that Macau would enjoy a high degree of autonomy in all matters except foreign and defense affairs for the next 50 years.

The history of Macau is traced back to the Qin Dynasty (221–206 BC), when the region now called Macau came under the jurisdiction of Panyu county, in Nanhai prefecture (present day Guangdong).The first recorded inhabitants of the area were people seeking refuge in Macau from invading Mongols during the Southern Song Dynasty. Under the Ming Dynasty (1368–1644 AD), fishermen migrated to Macau from Guangdong and Fujian provinces.

Macau did not develop as a major settlement until the Portuguese arrived in the 16th century. In 1535, Portuguese traders obtained the rights to anchor ships in Macau's harbours and to carry out trading activities, though not the right to stay onshore.Around 1552–1553, they obtained temporary permission to erect storage sheds onshore, in order to dry out goods drenched by sea water; they soon built rudimentary stone houses around the area now called Nam Van. In 1557, the Portuguese established a permanent settlement in Macau, paying an annual rent of 500 taels of silver. During the 16th century, Macau also served as a trafficking point for Chinese slaves to Portugal (see Slavery in Portugal). Many Chinese boys were captured in China, and through Macau were brought to Portugal and sold as slaves in Lisbon. Some were then sold in Brazil, a Portuguese colony.Chinese slaves were prized by Portuguese and regarded better than moorish and black slaves but in 1595 a law was passed banning the selling and buying of Chinese slaves and in February 19, 1624, the King of Portugal forbade the enslavement of Chinese of either sex.

As more Portuguese settled in Macau to engage in trading, they made demands for self-administration; but this was not achieved until the 1840s. In 1576, Pope Gregory XIII established the Roman Catholic Diocese of Macau. In 1583, the Portuguese in Macau were permitted to form a Senate to handle various issues concerning their social and economic affairs under strict supervision of the Chinese authority, but there was no transfer of sovereignty. Macau prospered as a port but was the target of repeated failed attempts by the Dutch to conquer it in the 17th century.

Following the Opium War (1839–42), Portugal occupied Taipa and Coloane in 1851 and 1864 respectively. On December 1, 1887, the Qing and Portuguese governments signed the Sino-Portuguese Treaty of Amity and Commerce, under which China ceded the right of "perpetual occupation and government of Macau by Portugal" in compliance with the statements of the Protocol of Lisbon. In return, Macau Government would cooperate with Hong Kong's smuggle of Indian opium and China would be able to increase profits through customs taxes. Portugal was also obliged "never to alienate Macau without previous agreement with China", therefore ensuring that negotiation between Portugal and France (regarding a possible exchange of Macau and Portuguese Guinea with the French Congo) or with other countries would not go forward — so that the British commercial interests would be secured; Macau officially became a territory under Portuguese administration.

 

In 1928, after the Qing Dynasty had been overthrown following the Xinhai Revolution, the Kuomintang (KMT) government officially notified Portugal that it was abrogating the Treaty of Amity and Commerce; the two powers signed a new Sino-Portuguese Friendship and Trade Treaty in place of the abrogated treaty. Making only a few provisions concerning tariff principles and matters relating to business affairs, the new treaty did not alter the sovereignty of Macau and Portuguese government of Macau remained unchanged.

In the second world war, unlike in the case of Portuguese Timor which was occupied by the Japanese in 1942 along with Dutch Timor, the Japanese respected Portuguese neutrality in Macau, but only up to a point. As such, Macau enjoyed a brief period of economic prosperity as the only neutral port in South China, after the Japanese had occupied Guangzhou (Canton) and Hong Kong. In August 1943, Japanese troops seized the British steamer Sian in Macao and killed about 20 guards. The next month they demanded the installation of Japanese "advisors" under the alternative of military occupation. The result was that a virtual Japanese protectorate was created over Macau. Japanese domination ended in August 1945.

After the establishment of the People's Republic of China in 1949, the Beijing government declared the Sino-Portuguese Treaty of Amity and Commerce invalid as an “unequal treaty” imposed by foreigners on China. However, Beijing was not ready to settle the treaty question, leaving the maintenance of “the status quo” until a more appropriate time.

Influenced by the Cultural Revolution in mainland China and by general dissatisfaction with Portuguese government, riots broke out in Macau in 1966. In the most serious, the so-called 12-3 incident, 6 people were killed and more than 200 people were injured. On 28 January 1967, the Portuguese government issued a formal apology.

Shortly after the overthrow of the Portuguese dictatorship in 1974 in Lisbon, the new Portuguese government determined it would relinquish all its overseas possessions. In 1976, Lisbon redefined Macau as a "Chinese territory under Portuguese administration" and granted it a large measure of administrative, financial, and economic autonomy. Three years later, Portugal and China agreed to regard Macau as "a Chinese territory under (temporary) Portuguese administration". The Chinese and Portuguese governments commenced negotiations on the question of Macau in June 1986. The two signed a Sino-Portuguese Joint Declaration the next year, making Macau a special administrative region (SAR) of China. The Chinese government assumed formal sovereignty over Macau on 20 December 1999. The economy since then has continued to prosper with the sustained growth of tourism from mainland China and the construction of new casinos.