Founded in 1860 by Teniente Francisco Rodriguez and Basilio Cordova in the mouth of the river known today as Bulanon River, this place was called Arguelles. Later, by the order of the Spanish Governor, the town proper was transferred to the Old Sagay site known as Pueblo de Magallanes.

In 1906, during the administration of the second President Quintin Katalbas, the name of the town was officially changed to Sagay. The name was taken from the semi-spherical shell called “sigay.”

After World War II, the seat of government was transferred to the present site, Dalusan, because of its accessibility to land transportation.

In 1995, the Hon. Congressman of the 2nd District Alfredo G. Marañon, Jr. authored House Bill No. 6543- An Act Converting the Municipality of Sagay in the Province of Negros Occidental into a component City to be known as the City of Sagay. In June 11, 1996, His Excellency Pres. Fidel V. Ramos signed into law Republic Act 8192, which gave birth to the City of Sagay.