Little more than 150 years old, Punta Arenas was originally a military garrison and penal settlement conveniently situated for ships headed to California during the gold rush in later years. Compared to the initial Chilean settlement at Fuerte Bulnes, 60km south, the town had a better, more protected harbor and superior access to wood and water. English maritime charts dubbed the site Sandy Point, and thus it became known as the Spanish equivalent.

In its early years Punta Arenas lived off natural resources, including sealskins, guanaco hides and feathers, as well as mineral products (including coal and gold), guano, timber and firewood. The economy took off in the last quarter of the 19th century, after the territorial governor authorized the purchase of 300 purebred sheep from the Falkland Islands. This successful experiment encouraged sheep ranching, and by the turn of the century nearly two million animals grazed the territory.

The area's commercial and pastoral empires were built on the backs of international immigrant labor, including English, Irish, Scots, Croats, French, Germans, Spaniards, Italians and others. Many locals trace their family origins to these diverse settlers. The many mansions created by the wealthy are now hotels, banks and museums.