In ancient times Favignana was called Aegusa, meaning "goat island". The present name is derived from Favonio, an Italian name for the foehn wind. It was colonised by the Phoenicians, who used it as a stopping point on their trans-Mediterranean trading routes.
The island was fought over during the First Punic War between Rome and Carthage. On 10 March 241 BC, a major naval battle was fought a short distance offshore between the two powers. Two hundred Roman ships under the consul Gaius Lutatius Catulus met and decisively defeated a much larger Carthaginian fleet of 400 ships, with the Romans sinking 120 Carthaginian vessels and taking 10,000 prisoners. So many dead Phoenicians washed ashore on the northeastern part of Favignana that the shoreline there acquired the name "Red Cove" (Cala Rossa) from the bloodshed. The Romans took possession of the island under the terms of the treaty that ended the war.
Under Roman rule, the islanders adopted Christianity by the 4th century AD, although judging by inscriptions dated to the 1st century BC they appear to have retained at least some Phoenician culture. In the early Middle Ages, Favignana was captured by Arabs and was used as a base for the Islamic conquest of Sicily. The Normans subsequently took possession of the island, and built fortifications there from 1081. Under the Aragonese rulers of Sicily, Favignana and the other Aegadian Islands were hired out to Genoese merchants and in the 15th century the islands were granted to one Giovanni de Karissima, who adopted the grand title "Baron of Tuna".
The plentiful tuna fish found offshore were first exploited systematically under the Spanish from about the 17th century onwards. Facing severe financial problems from their ongoing wars, the Spanish sold the islands to the Marquis Pallavicino of Genoa in 1637. The Pallavicini substantially developed the economy of the island, prompting the establishment of the modern town of Favignana around the Castello
