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The area around Puerto Escondido had been inhabited by indigenous peoples for centuries, but no towns of any size were established during the pre-Hispanic or colonial eras. The bay was known as Bahia de la Escondida (Bay of the Hidden Woman) due to a legend associated with this place. The story states that a fierce pirate, Andrés Drake, brother of Sir Francis Drake, anchored his ship in the bay when the area was completely uninhabited, to rest for a few days unmolested by authorities.
Some weeks before, he and his crew kidnapped a young Mixtec woman from the village of Santa María Huatulco and took her prisoner. While in the bay, the woman escaped the cabin in which she was being held, and being a good swimmer, jumped overboard to get to shore and hide in the jungle just beyond the beach. Since then, the pirates referred to the woman as "La Escondida" (the hidden one) and every time the ship returned to these waters, the captain ordered his crew to search the area around the bay, however, they never found her. Hence, the area became known as the Bahía de la Escondida.
At the beginning of the 20th century, it was known as Punta Escondida (Hidden Point), then later, Puerto Escondido. At that time, it was just a small fishing village that intermittently was used to ship coffee. Back then, Puerto Escondido suffered from a lack of potable water, although the Colotepec River ran nearby. This caused people to settle in other places. Some did stay, including Nazario Castellanos and Escolástica Valencia, who were the night watchmen for the nearby coffee plantations and considered to be the town's first residents. There was no real town until the 1930s, when Puerto Escondido's activity as a port was more firmly established.
Puerto Escondido belonged to the municipality of Santa María Colotepec. However, eventually the residents petitioned to change jurisdiction to another nearby municipality, San Pedro Mixtepec, which was granted in the 1940s.
From the 1940s to the 1960s, a church was constructed and the first school was built. Wells were dug to alleviate the water supply problems, and generators bought to supply electricity to the pumps and the few streetlights. However, there were still problems getting needed outside supplies such as sugar. These commodities only arrived when a merchant ship entered the bay to sell its wares. Sometimes, this would not happen for months. Residents got by with local products such as fish, poultry, iguanas, chicken and turtle eggs. After the Sola de Vega road to the capital of Oaxaca was constructed, this problem was alleviated somewhat.
In the 1960s, Highway 200 was built, connecting Oaxacan coastal towns with Acapulco. Surfers and other tourists began to find the quiet beaches around Puerto Escondido and tourism began to flourish. Its function as a port diminished as coffee began to be transported by truck. Other infrastructure added included those to supply the area with potable water, a small airport where the Rinconada is now, mail service and some government offices. However, in the 1970s only about 400 people lived in Puerto Escondido.
With time, Puerto Escondido's importance as a tourist attraction increased, with hotels and resorts being constructed. For many years, restaurants were almost exclusively in "palapas" (thatched roof shelters) with fishermen preparing their catches; however, these have mostly given way to modern tourist facilities. Puerto Escondido is one of the most important tourist sites on the Oaxacan coast.
The community of Puerto Escondido is divided between two municipalities. The Zicatela Beach side belongs to the municipality of Santa María Colotepec and the western portion belongs to San Pedro Mixtepec. The boundary between the two municipalities is in dispute, leaving many businesses in limbo, sometimes paying taxes to both municipalities. Puerto Escondido is lobbying for a more independent status with the Congress of the state of Oaxaca, against opposition from San Pedro Mixtepec. 69% of the municipality's population lives in Puerto Escondido. In addition to the above problems, backers of the measure stated that while the community generates most of the municipality's income, it does not receive support from the municipal seat. In August 2008, residents of Puerto Escondido blocked the highway to the municipal seat of San Pedro Mixtepec to protest the lack of money for infrastructure in the town. As of the 2009 census, Puerto Escondido had a population of 20,178
On 30 July 2009, the state congress declared Puerto Escondido to be a city. However, the declaration did not resolve the boundary dispute between San Pedro Mixtepec and Santa María Colotepec.
