The island is bisected at roughly 4° 10' north by the Indonesia–Malaysia border – the northern part belongs to Sabah, Malaysia (Sebatik Malaysia) while the southern part belongs to North Kalimantan (previously East Kalimantan), Indonesia (Sebatik Indonesia).

[6] This is one of the reasons why the Ambalat region waters and crude oil deposits east of Sebatik Island have been the centre of an active maritime dispute between Indonesia and Malaysia since March 2005.

The ambiguity of the border at the eastern edge also caused a dispute over two nearby islands of Sipadan and Ligitan, both south of 4° 10' N but administered by Malaysia.

The territorial dispute was resolved by the International Court of Justice in 2002 which awarded the islands to Malaysia.

The North Borneo Timbers company operated a logging concession on the island until the 1980s and its mostly expatriate employees lived in a self-contained community in Wallace Bay.