In the 16th century, during the period of the Spanish conquest of Guatemala, the shore of the lake was the scene of a battle in which the Spanish and theirKaqchikel allies defeated the Tz'utujils. The Spanish set up a church and monastery in Panajachel soon afterward, and used the town as a centre to convert the indigenous people of the region to the Roman Catholic faith. The original façade of the church still stands, and is considered one of the gems of the colonial style in Guatemala.
The town attracted many Hippies in the 1960s, but the numbers of foreign visitors plummeted during the Guatemalan Civil War. After the war ended, tourists started coming back, and Panajachel's economy is once again primarily based on tourism
