Archaeological evidence indicates that Bahrain was inhabited at least 50,000 years ago. The inhabitants may have first practiced agriculture about 8,000 years ago. By about 4000 bc Bahrain was the center of the advanced Dilmun trading culture, which had connections with the civilizations of Mesopotamia and the Indus Valley (see Indus Valley Civilization). Dilmun seems to have been a federation of sorts that was centered on the Persian Gulf shore. It included parts of the Arabian mainland and traded with inland sections of what is now Saudi Arabia. Thus, early in its history, Bahrain established its character as a cosmopolitan commercial state, based on its location on major trade routes that passed through the Persian Gulf region.

During the 19th century, Britain intervened several times to suppress piracy by the Bahrainis and to defeat attempts by neighbouring Arabs to assert dominion over the islands. In a series of treaties dating from 1820, Britain gained extensive control over Bahrain. After Britain's decision in 1968 to withdraw all forces from the Persian Gulf, Sheikh 'Isa ibn Sulman Al Khalifah proclaimed Bahrain independent in August 1971. After independence, tensions between the Shi'ite and Sunnite communities increased, and Shi'ite Muslims, emboldened by Iran's revolution in 1979, continued to press for greater participation in government.

Petroleum was discovered in Bahrain in 1932, the first such discovery on the Arabian coast of the Persian Gulf. The discovery assured the country’s continued prosperity. Oil provided the ruling family with an independent source of income, strengthening its position against potential challenges from the wealthy merchant class. In addition, it made possible the creation of modern infrastructure (roads, water supply, and so forth) and social services. Consequently, Bahrain developed a modern state administration before the other states under British protection: Kuwait, Qatar, and the seven Trucial States (later the United Arab Emirates). Bahrain thus acquired a greater commercial and strategic importance. As a result, Britain exercised its influence there more strongly than in the other protected states, and Britain’s naval forces in the Persian Gulf established their home port at Al Jufayr.