Ancud was an international Port until the beginning of the 20th century. It was founded in 1768 as a port and fortress for the protection of traffic from Cape Horn. Ancud became the major town of Chiloé and was declared the political and military capital of the territory. After the republic of Chile was formed it was attacked unsuccessfully in 1820 by Lord Cochrane and in 1824 by General Freire, who two years later finally succeeded in defeating the Spaniard Antonio Quintanilla in the battles of Pudeto and Bellavista, near to the town.

An expedition to colonise the Straights of Magellan was organised in Ancud in 1843.

Having crossed the South Pacific ships would stop in the harbour, which was also frequented by Antarctic whalers. The rise of the timber trade at the beginning of the 19th century saw considerable urban development of the town coinciding with European settlement of the surrounding areas. In 1982 the provincial capital was transferred to Castro.