The original inhabitants of the Pensacola Bay area were Native American At the time of European contact, a Muskogean-speaking tribe known to the Spanish as the Pensacola lived in the region. This name was not recorded until 1677, but the tribe appear to be the source of the name "Pensacola" for the bay and thence the city. Creek people, also Muskogean-speaking, came regularly from present-day southern Alabama to trade, so the peoples were part of a broader regional and even continental network of relations.

The best-known Pensacola Culture site in terms of archeology is the Bottle Creek site, a large site located 59 miles (95 km) west of Pensacola north of Mobile, Alabama. This site has at least 18 large earthwork mounds, five of which are arranged around a central plaza. Its main occupation was from 1250 CE to 1550. It was a ceremonial center for the Pensacola people and a gateway to their society. This site would have had easy access by a dugout canoe, the main mode of transportation used by the Pensacola.

The area's written recorded history begins in the 16th century, with documentation by Spanish explorers who were the first Europeans to reach the area. The expeditions of Pánfilo de Narváez in 1528 and Hernando de Soto in 1539 both visited Pensacola Bay, the latter of which documented the name "Bay of Ochuse". Juan Jordán de Reina recorded in his diary that Native Americans in the region around Pensacola Bay called the area "Panzacola" after the Panzacola Indians. He judged the bay as "the best that I have ever seen in my life."

In 1559, Tristán de Luna y Arellano landed with some 1,500 people on 11 ships from Veracruz, Mexico. The expedition was to establish an outpost, ultimately called Santa Maria de Ochuse by Luna, as a base for Spanish efforts to colonize Santa Elena (present-day Parris Island, South Carolina.) But following a series of hurricanes the effort was abandoned in 1561 and ignored for 137 years.

Juan Jordán de Reina recorded in his diary that Native Americans in the region around Pensacola Bay called the area "Panzacola" after the Panzacola Indians. He judged the bay as "the best that I have ever seen in my life."

In the late 17th century, the French began exploring the lower Mississippi River with the intention of colonizing the region as part of La Louisiane or New France in North America. Fearful that Spanish territory would be threatened, the Spanish founded a new settlement in western Florida. In 1698 they established a fortified town near what is now Fort Barrancas, laying the foundation for permanent European-dominated settlement of the modern city of Pensacola. The Spanish built three presidios in Pensacola.

After years of settlement, the Spanish ceded Florida to the British in 1763 as a result of an exchange following British victory over France in the French and Indian War (the North American theater of the Seven Years' War), and French cession of its territories in North America. The British designated Pensacola as the capital of their new colony of West Florida. From 1763, the British strengthened defenses around the mainland area of fort San Carlos de Barrancas, building the Royal Navy Redoubt.

After Spain joined the American Revolution in 1779 on the side of the rebels, Spanish forces captured the city in the 1781 Battle of Pensacola, gaining control of West Florida. After the war, the British officially ceded both West Florida and East Florida to Spain.

In 1785 with the founding of the Panton, Leslie Company here, many Creek from southern Alabama and Georgia came to trade, and it developed as a major center. It was a garrison town, predominantly males in the military or trade. Americans made raids into the area, and settlers pressured the federal government to gain control of this territory.

In 1819 Spain and the United States negotiated the Adams–Onís Treaty, by which Spain sold the Floridas to the United States for US$5 million. A Spanish census of 1820 indicated 181 households in the town, with a third of mixed-blood. The people were predominantly French and Spanish Creole. Indians in the area were noted through records, travelers' accounts, and paintings of the era, including some by George Washington Sully and George Catlin. Creek women were also recorded in marriages to Spanish men, in court records or deeds.

In 1821, with Andrew Jackson as provisional governor, Pensacola became part of the United States. St. Michael's Cemetery was established in the 18th century at a location in a south central part of the city, which developed as the Downtown area. Initially owned by the Church of St. Michael, it is now owned and managed by St. Michael's Cemetery Foundation of Pensacola, Inc. Preliminary studies indicate that there are over 3,200 marked burials as well as a large number unmarked.

Shipping declined in importance, but the military and manufacturing became prominent. Harvesting of fish and other seafood are also vital. Aside from cotton and pine trees, major crops include peanuts, soybeans, and corn. The Historic Pensacola Museum of Industry gives a detailed account of these turn-of-the-century foundations of the local economy.

Since the late twentieth century, there has been dramatic growth in the beach-based tourism industry and rapid development, particularly those around Panama City, Fort Walton Beach and Destin, Florida. Many barrier island areas have been redeveloped for condos and houses. Other areas remain undeveloped, and the Gulf Islands National Seashore is protected as a park.