It is bordered to the north and east by Cervera del Rio Alhama, west (from N to S) by Valdemadera and Navajún, and to the south by four municipalities in Soria province (from W to E), Cigudosa, San Felices, Dévanos and Ágreda.

In 1302 toll collectors from Tudela claimed rights over the village as a result of which they complained to Alfonso Robray, governor of Navarre, who ordered them not to worry.

John II, in 1452, liberated the entire village from the perpetual tax on wine which they sold, for having been faithful, although they may have experienced theft, arrest or were killed.

In 1463 Henry IV of Castile subjected many villages to his dominion, including Aguilar, under the compromise ruling granted by Louis XI of France.

Until the late 16th century, Aguilar del Rio Alhama was an Islamic community of Moriscos (Moors forcibly converted to Catholicism).

In the 1580s, it was the scene of one of the worst collective persecutions of an entire Morisco community in the history of the Inquisition, when nearly 30 adults from a village of some hundred households were burned at the stake or died in prison for secretly practising Islamic rituals.

The closure, in 1959, of a textile factory which employed a number of people, caused a rapid decline in the population, as many had to move to other areas in search of work.