The Balinese people are descendants of a prehistoric race who migrated through mainland Asia to the Indonesian archipelago, presumably first settling around 2500 BC. The end of the prehistoric period in Indonesia was marked by the arrival of the Hindu people arriving from India around 100 BC as determined by Brahmi inscriptions on potsherds.

The name Balidwipa has been discovered from various inscriptions, among others the Blanjong charter which was issued by Sri Kesari Warmadewa in 913 AD and mentions the word "Walidwipa".

The Hindu Majapahit Empire (1293–1520 AD) on Eastern Java founded a Balinese colony in 1343. The Majapahit empire collapsed slightly before 1500, due to Muslim assaults, causing an exodus to Bali.

Europeans first discovered the island when the Dutch explorer Cornelis de Houtman arrived in 1597, though a Portuguese ship had foundered off the coast of Bukit as early as 1585. The Dutch established a trade post soon after, and the Dutch East India Company (VOC) started trading from early 17th century onwards. Dutch control of the island was firmly established after a series of colonial wars (1846–1849).

These wars were so fierce (with the entire royal court of the Raja, women and children plunged into battle, armed with kris and spears, killing each other on the battlefield rather than be taken captive) that the Dutch governors afterwards exercised a lenient control, showing great respect for and protecting the local religion and culture.

International tourism started in the 1920s. Bali's beaches are famous worldwide. Its arts and crafts are also popular. A popular form of Balinese art is folk dance, of which there are many, Legong being an example of such.

Bali became part of the Republic of East Indonesia after the World War II Japanese conquest and part of United States of Indonesia in 1948.

On October 12, 2002, the island was the location of a car bomb attack aimed at Western tourists in the popular Kuta Beach part of the island.