During the 1960s, there were many municipal mergers across Norway due to the work of the Schei Committee.

[4] The municipality (originally the parish) is named after the island of Varaldsøy (Old Norse: Varaldsey).

On 3 November 1917, a royal resolution changed the spelling of the name of the municipality to Varaldsøy.

The mayor was indirectly elected by a vote of the municipal council.

The municipal council (Heradsstyre) of Varaldsøy was made up of representatives that were elected to four year terms.