Since its founding, Penedo has been a commercial center, owing to its prime position on the Rio São Francisco. The town was founded sometime between 1535 and 1560 by Duarte Coelho Pereira, who descended the Rio São Francisco in pursuit of Caete Indians responsible for killing a bishop. Penedo is claimed to be the river’s first colonial settlement. It was also the scene of a fierce 17th-century battle between the Dutch and the Portuguese for control of the Northeast. In the 19th century, Penedo was one of the focal points of the abolitionist movement in Alagoas. In the 20th century, the city lost its prominence as a commercial center, which probably saved its colonial buildings from destruction.