Nearby archaeological sites date back to the Stone Age, but permanent, and verifiable, human settlement here is only three centuries old. Stories that would be impossible to substantiate have Tai O as the base of many smuggling and piracy operations, the inlets of the river providing excellent protection from the weather and a hiding place. In early 16th century, Tai O was once occupied shortly by Portuguese during Battle of Tãmão. At nearby Fan Lau, a fort was built in 1729 to protect shipping on the Pearl River. Smuggling of guns, tobacco, drugs and people remains a documented illegal activity both into and out of mainland China.
When the British came to Hong Kong, Tai O was known as a Tanka village. During and after the Chinese Civil War, Tai O became a primary entrypoint for illegal immigration for those escaping from the People's Republic of China. Some of these immigrants, mostlyHan Chinese, stayed in Tai O, and Tai O attracted people from other Hong Kong ethnic groups, including Hoklo (Hokkien) andHakka.
Tai O has a history of salt production. In 1940, it was recorded that the Tai Po salt marshes were covering 70 acres (280,000 m2) and that the production has amounted to 25,000 piculs (1,512 metric tons) in 1938.
Currently the fishing lifestyle is dying out. While many residents continue to fish, it barely provides a subsistence income. There is a public school on the island and most young people move away when they come of age. In 2000 a large fire broke out destroying many residences. The village is now mostly squatters huts and dilapidated stilt houses
