[4] The parish had its origins in a small fishing village (the industry is now only found in isolated enclaves to the west), but was transformed by several holiday-villa complexes into a tourist area.

[5] At the end of the 19th century, various castros were discovered in the area of Serro Grande, that included various funerary tombs with galleries, dating to the Neolithic period.

King Manuel I, through his 1 June 1504 foral, recognized the importance of Lagos, in the Kingdom of the Algarve, for the quantity of fish catches at the time (primarily of tuna and sardine caught in Luz).

Luz was also a major producer of figs (regularly exported to the fine sweets industry that developed), while wheat and barley were being cultivated in many of the parcels around the parish seat.

[4][5] The origins of the settlement date to the construction of a fortress in the area of Luz, and the presence of fishermen along the coast, especially after the establishment of an industry in the 15th and 16th centuries,[5] when sardine fishing employed around 90 men.

[5] Praia da Luz became more familiar to the international public in 2007, when British tourist Madeleine McCann disappeared from a holiday flat (her whereabouts still remain unknown), as her parents ate at a nearby tapas restaurant.

Luz's beach and setting have attracted many visitors to the region, resulting in a shift from an economy based on fishing to one providing services for tourists.

[5] Along the beach, many of the canning plants were closed and replaced by windsurfing and diving schools, as well as discos, restaurants and shops tailored to the needs of the seasonal visitor.

[5] The once prominent casino closed, and was replaced by a local primary school, before becoming the seat of the parish government and health centre.

[5] The settlements of Luz have become holiday destinations for citizens primarily from the United Kingdom, Ireland, France and Germany, as well as residents of Portugal.

[5] There are many habitational structures that correspond to the estilo chão ("ground style") typical of the rural buildings that date back to the end of the 18th century.