Bagamoyo's history has been influenced by Indian and Arab traders, by the German colonial government and by Christian missionaries. About 5 km south of Bagamoyo, the Kaole Ruins with remnants of two mosques and a couple of tombs can be dated back to the 13th century and show the importance of Islam in those early Bagamoyo times. All of the structures were built with coral stones. Until the middle of the 18th century, Bagamoyo was a small and insignificant trading center where most of the population were fishermen and farmers. Main trading goods were fish, salt and gum among some other things. Today the College of Arts (Chuo cha Sanaa), the only major college in Tanzania, is situated along the Kaole road close to the Kaole ruins and teaches various fields of dance, music, drama and painting. Over weekends the students give free performances allowing visitors to acquaint themselves with traditional dances.

In the late 18th century Muslim families settled in Bagamoyo, all of which were relatives of Shamvi la Magimba in Oman. They made their living by enforcing taxes on the native population and by trading in salt, gathered from the Nunge coast north of Bagamoyo. In the first half of the 19th century, Bagamoyo became a trading port for ivory and slave trade, with traders coming from the African interior, from places as far as Morogoro, Lake Tanganyika and Usambara on their way to Zanzibar. This explains the meaning of the word Bagamoyo ("Bwaga-Moyo") which means "Lay down your Heart" in Swahili, a despair expressed by people who were captured as slaves knowing that they face a long uncertain future.

Slave trade officially ended in the year 1873, but well to the end of the 19th century slaves were sold and traded in Bagamoyo.

In 1868, Bagamoyo's Muslim presented the Catholic "Fathers of the Holy Ghost" with land for a mission north of the town, the first mission in East Africa. This caused resistance by the native Zaramo people which after an intervention by the French consul if Zanzibar was put down by Sultan Majid and after 1870 by Sultan Barghash. Originally the mission was intended to house children who were rescued from slavery, but it soon expanded to a church, a school, and some workshops and farming projects. Here you will also find a cemetery, where the early missionaries were buried, and a small shrine which was built by freed slaves in 1876.

But Bagamoyo was not only a trade center for slaves, ivory and copra, it was also a starting point for some renowned European explorers. From Bagamoyo they moved out to find the source of the River Nile and explored the African inner lakes. Some of these were David Livingstone, Richard Francis Burton, John Hanning Speke, Henry Morton Stanley and James Augustus Grant. The Bagamoyo museum is a small museum which displays Bagamoyo history in relation to its contact with foreigners, here visitors can view old photographs, documents and relics from the slave trade. On the same compound there is a small chapel known as the Anglican Church of the Holy Cross. The church is famous for being a place where the remains of David Livingston were laid before taken to Zanzibar en route to Westminster Abbey for burial.

Bagamoyo was the German headquarters of German East Africa in 1891. In the first year of World War I, a British air attack and naval bombardment was launched on Bagamoyo, the Germans overrun and the German garrison taken. Bomani, the German Colonial administration headquarters, is now a memorial site for the first German East African Capital.

When Seyyid Said, Sultan of Oman, decided to move his capital from Muscat to Zanzibar in 1940, Bagamoyo's importance began to decline.

Today, Bagamoyo is a centre for dhow sailboat building. The Department of Antiquities in Tanzania is working to maintain the ruins of the colonial era in and around Bagamoyo and to revitalize the town. The Bagamoyo College of Arts (“Chuo cha Sanaa”) is an internationally famous arts college in Tanzania, teaching traditional Tanzanian painting, sculpture, drama, dancing and drumming.