The town's history is closely linked to the settlement of Sipar,[9] whose ruins can be found on a narrow cape four kilometres north of Umag.

The Roman period of relative prosperity was interspersed with one of insecurity caused primarily by frequent invasions, outbreaks of plague, cholera, and malaria.

The subsequent period was marked by insecurity and frequent changes of government ranging from the Patriarchs of Grado and Aquileia to the Bishops of Trieste.

However, the increasingly powerful Venetian Republic imposed its rule over Istria, forcing Umag and other western Istrian towns to swear loyalty to Venice.

The outbreaks of plague that decimated the inhabitants forced the Venetian authorities to consider colonising the area with new settlers, mainly from the territories threatened by Turkish invasions.

[citation needed] In 1993, with the establishment of the new local rule, Umag became an independent municipality, and, in 1997, was awarded the status of town (grad).

The geographical location of Umag, in particular, has ensured an intensive and dynamic growth of the tourist industry after World War II, which has been expanding rapidly ever since.

The food industry started in Umag in the early 20th century with the opening of the "Arrigoni" plant for packing fish and tomatoes and the building of a flour mill, the predecessor of today's bakery and biscuit factory.

Today new factories have grown up in two industrial zones (Ungarija and Kravlji rt), which are provided with the necessary infrastructure continuously rebuilt and enlarged.

The economic growth of Umag is based on the stimulation and support of small and medium-sized firms and the establishment of business zones.