Tradition says that the name of the city Pilão Arcado (Arched Pestle) is connected to a legend that says that some fishermen found a pestle, shaped as an arch, in one of the margins of São Francisco River, and started to use it to ground salt for the fish. Pilão Arcado started as a village founded in the end of the 17th century, by order of the Vice-King D. João de Lencastre to stop the constant attacks of the Indians to the cattle farms of the region. The city, which belonged to the province of Pernambuco then, was created in 1810 and called Vila do Pilão Arcado.
In 1824, due to the separatist rebellions of the people of Pernambuco against the Empire, the city became part of the Province of Minas Gerais. In 1827, it was declared part of Bahia. In 1974, because of Sobradinho Dam, in São Francisco River, the city was transferred to an area 62km away from the former city; this new city was planned and built by the Federal Government, through Chesf.