The Baja California peninsula was originally discovered by Cortez in 1535. In 1539, Cortez dispatched Fransisco de Ulloa to map the coastline of what has known as the "Southern Sea". His cartographer, Domingo del Castillo, identified the San Felipe cove as "Santa Catarina." The existence of the Baja California peninsula was unknown at the time as the Spaniards believed it was an island. However, it was Ulloa who validated that "Baja California" was not an island.

One year later, Hernando de Alarcón was sent by the viceroy of New Spain to sail into the area to support the Coronado Expedition. Domingo del Castillo accompanied Alarcón on this second voyage was able to improve upon the map he produced during the Ulloa voyage.

Sailing in the first ship built on Baja California soil, Juan de Ugarte landed in the bay on July 5, 1721. Twenty-five years later, Padre Fernando Consag visited the area and formally christened the place San Felipe de Jesús.

San Felipe's modern history dates from 1876 when the Mexican government signed a colonization contract with one Guillermo Andrade who acquired some 30,000 hectares but died before his plans were realized.

In 1925, the first sub-delegation was created and San Felipe began to develop as an organized community. The first fishing society was founded in 1928 and the first school was established in 1929. By the end of the 1920's the town boasted 100 permanent inhabitants. In 1940 the town was reported to have a population of 287.

The highway from San Felipe to Mexicali began in 1948 and was completed three years later. This road allowed San Felipe to began a growth spurt in the city as tourism began to flourish with a variety of new businesses, hotels and restaurants.

Electricity was provided in 1963 and the first drinkable water in 1967. The 1970's brought government buildings, restaurants, bars, gas stations and other services. The public sewage system was installed, the San Felipe international airport was constructed and the San Felipe malecon began to flourish.

In 1994, Pat Butler, former land developer for Marriott Hotels, completed a 200,000 acre land acquisition surrounding San Felipe. This property, now referred to as El Dorado Ranch sparked a surge of development by a variety of real estate companies in the area.

With land developers now investing in the area, San Felipe began a rapid development due to the funding by the Mexican National Trust Fund for Tourism Development. Known as Fonatur, this organization funded the developments for popular Mexican tourism locations such as Cancun, Acapulco, Mazatlan and Cabo San Lucas. Fonatur began upgrading the airport, marina, cellular towers, phone, electricity, sewer, water and widening the highway between the border and San Felipe into four lanes.

The San Felipe economy depends on the well-established fishing industry, tourism and the new wave of retirement communities being built in the area. In 2003, a civic auditorium, theater building and San Felipe hospital began construction.

In 2006, the San Felipe population surpassed 25,000 residents, many of which are foreign residents who were searching for an enjoyable place to retire. San Felipe is currently the fastest growing real estate community in Baja California.