Cabo Rojo (Red Cape in English) derives its name from both the reddish color of its salt-flats and the reddish tint that characterizes the seaside cliffs along its southern coast. According to legend, the name was given by Christopher Columbus himself, although this is highly unlikely. The first church, founded in 1783, was called San José. The present-day main catholic church is called San Miguel Arcángel Church located in the town's square.

People from the El Combate barrio are known as mata con hacha ("those who kill with axes") based on an old folk tale about a fight over the salinas, where those from Cabo Rojo fought with axes against people from the adjacent town of Lajas. The latter apparently fought back by throwing stones and are thus known as tira piedras ("those who throw stones").

The area of near Las Salinas (salt flats) has been inhabited since 30 BC and AD 120 according to archaeological evidence. Punta Ostiones, listed in the National Register of Historic Places as an archeological site, was home to a large group of Archaic Indians.

Despite the threat of pirates and Indians, the Spanish settled the area of Los Morrillos around 1511. By 1525, salt mining was an important industry in the area.

According to Fray Iñigo Abbad y Lasierra by the end of the 18th century, Cabo Rojo had a population of 1,215 people.

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