The Japanese name Karafuto purportedly comes from Ainu kamuy kar put ya mosir (カムィ・カㇻ・プッ・ヤ・モシㇼ), which means 'the island a god has created on the estuary (of Amur River)'.

The 1855 Treaty of Shimoda acknowledged that both the Russian Empire and Japan had joint rights of occupation to Sakhalin, without setting a definite territorial demarcation.

In the Treaty of Saint Petersburg (1875), Japan agreed to give up its claims on Sakhalin in exchange for undisputed ownership of the Kuril Islands.

Japan invaded Sakhalin in the final stages of the Russo-Japanese War of 1904–1905, but per the 1905 Treaty of Portsmouth was allowed to retain only the southern portion of the island below the 50° N parallel.

In 1920, Karafuto was officially designated an external territory of Japan, and its administration and development came under the aegis of the Ministry of Colonial Affairs.

As Japan was extending its influence over East Asia and the Pacific through the establishment of a Greater East Asia Co-Prosperity Sphere, the Imperial Japanese Army as part of its offensive contingency plans to invade the Soviet Union if it either became involved in the Pacific War or collapsed due to the ongoing German invasion, proposed the annexation of the remaining northern half of Sakhalin to Japan.

The military government established by the Soviet Army banned the local press, confiscated cars and radio sets and imposed a curfew.

Local managers and bureaucrats were made to aid Russian authorities in the process of reconstruction, before being deported to labor camps, either on North Sakhalin or in Siberia.

More and more colonists began to arrive from mainland Russia, with whom the Japanese were obliged to share the limited stock of housing.

In 1945, with the defeat of Japan in World War II, the Japanese administration in Karafuto ceased to function.

In 1951, at the Treaty of San Francisco, Japan renounced its rights to Sakhalin, but did not formally acknowledge Soviet sovereignty over it.

[3] Since that time, no final peace treaty has been signed between Japan and Russia, and the status of the neighboring Kuril Islands remains disputed.

[6] Indigenous Nivkh and Oroks worked in Japanese-run fisheries and a synthetic textile plant near the Russian border.

The Colonization Bureau became the Ministry of Colonial Affairs (拓務省, Takumushō) in 1923 at which time Karafuto was officially designated an overseas territory of the Empire of Japan.