The Guanabara Bay was first discovered by explorers from Portugal in January, 1502, which is how the January River, as 'Rio de Janeiro' translates, gained its name. At that time, 'river' was used by the Portuguese for any larger body of water. Soon after, Europeans from all over were coming there, with French smugglers already taking advantage of the bay by 1519. The first permanent European settlement in the area, called France Antarctique, was founded in 1555 by French naval officer Nicolas Durand de Villegaignon. However, Villegaignon was forced to leave two years later after coming into conflict with the rest of the settlers.



Portuguese knight Estácio de Sá officially founded the city in March of 1565, calling it São Sebastião do Rio de Janeiro 20 (St. Sebastian of the January 20th River). For many years, the city's common name was São Sebastião. Founded as a base from which to conquer France Antarctique, the French were driven out within two years. The exact site of Rio de Janeiro's founding is at the foot of Sugarloaf Mountain. As it evolved over the years, the entire city was relocated to the top of a hill, according to the Medieval European defensive strategy, bringing the current center of town in a southwesterly direction, an urban shift which continues to this day.

Sugarcane was the area's first product, with slaves from both Africa and domestic areas utilized for the labor. When higher-quality sugarcane from northern districts of Brazil became more popular, this industry went into decline. In 1763, the colonial administration was relocated to the city of Rio de Janeiro, and it remained mainly a colonial capital until 1808, when the Portuguese royal family had to flee from Napoleon's invasion, winding up in Rio. Thereafter the city served as the kingdom's capital, becoming the only European capital located outside of Europe.

Prince Pedro I then declared Brazil's independence in 1822, but by that time the city's economic and political importance was dwindling when compared to São Paulo. However, it remained the capital even after the late 19th Century, when the monarchy was thrown out and a republic established in its place.

Then, in the early decades of the 20th Century, Copacabana Beach's natural beauty combined with the allure of the Copacabana Palace Hotel brought Rio de Janeiro the reputation it retains to this day, as a world wide famed beach destination.