Carvoeiro has a rich and varied history. The area around Carvoeiro has been inhabited since prehistoric times, with evidence of settlements dating back to the Roman era. The Romans were attracted to the region for its strategic coastal position and resources, particularly fish and minerals.

During the Middle Ages, Carvoeiro was part of the Moorish territory until it was reconquered by Christian forces in the 12th century. The name "Carvoeiro" itself is believed to have derived from the Portuguese word for charcoal ("carvão"), possibly referring to charcoal production in the area.

In the 18th century, the village began to grow around a natural harbor that served as a safe haven for fishermen and small trading vessels. The primary occupation of the inhabitants was fishing, and the village thrived on the bounty of the sea. By the 19th century, Carvoeiro had established itself as a modest yet bustling fishing community.

The mid-20th century marked a significant transformation for Carvoeiro with the advent of tourism. Its beautiful beaches, such as Praia do Carvoeiro, and stunning coastal cliffs started attracting visitors. The construction of infrastructure to support tourism, including hotels, restaurants, and recreational facilities, began to reshape the village's economy and landscape.

Today, Carvoeiro is a popular tourist destination known for its charming whitewashed houses, vibrant nightlife, and natural beauty. Despite its development, the village has managed to retain much of its original character and continues to be a beloved spot for both locals and tourists seeking a blend of history, culture, and scenic beauty.