During the Moorish occupation Lagoa was a small fortified hamlet under the control of the city of Silves. Today it is a rural city with declining agricultural importance, since many farmers found it more attractive to sell their land as plots instead of producing wine, carob beans and topsoil vegetable. In August an important commercial and rural product fair, Fatacil, is held in the town exhibiting products from all over Portugal.

The history of nearby city of Estombar was the home of the famous Arab poet „Ibn Ammar“ who lived in the 11th Century. Near Estombar the Sitio de Fontes used to be a popular swimming spot due to its freshwater springs providing a small lagoon. Today it has become an open area for performing plays and for general picnicking.

To the south of Lagoa the former fishing village of Carvoeiro has evolved to an area of expensive villas, comfortable hotels and various golf courses. The attractiveness for tourists to acquire land is based on the variety of the many beaches surrounded by bizarre cliffs, some of which eroded to create beckoning dark caves.

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