The first recorded inhabitants of Water Island were the Taino or Arawak Indians, around the early 1400's. Four Indian campsites have been uncovered on the island. None of these sites were large. Pottery, tools and human remains indicate their presence.

In the days of piracy, Water Island was used by pirates both for anchorage and for fresh water. Water Island gets it's name from the numerous fresh water ponds that were found there. Pirates and other sea farers used to replenish their water supplies from these ponds.

Water Island, during the years of European colonization, was used to graze cattle and goats. The livestock was owned by the Danish West Indian Company and was used to feed colonist. This was around 1672.

Water Island's history of ownership is very interesting. It was uncommon to find non-white plantation owners during the years of European colonization, however, numerous free colored men owned Water Island. It is believed that this was tolerated because of Water Islands less then ideal topographical features, arid land and marginal location.

Evidence of human occupation, post colonization, dates to 1710. It is said that a sail maker by the name of William Breitz lived with his family on Water Island. Upon the death of Breitz, the property changed hands to Albert de Ruyter. Ruyter was owner until his own death in 1719.

Detailed Danish records of property ownership exist from 1769 to 1914.

In 1769 Jean Renaud, a free mulatto, owned the island. Renaud along with eighteen slaves worked the land on Water Island. Records show that he was one of two free colored planters in the Virgin Islands at that time. In 1793 another free man of color, Peter Tamaryn took over the island from Renaud. Peter Tamaryn commanded the Free Negro Corps, a group formed by the Danes that was used to track runaway slaves.

Jean Regis Pourier, another free man of color, formed another plantation in 1799. For 60 years two plantation owners operated Water Island independently. The properties changed hands numerous times. The two plantations were joined under the common ownership of Joseph Daniel in the 1860's.

The eighteen-century shows records of Water Island being used for animals and cotton production. In between the years of 1801 and 1821 the population of Water Island increased, it reached a peak in 1815 with 111 people living there. The population slowly decreased in the following years. Following emancipation in 1848, it is believed that slave quarters were abandoned.

Joseph Daniel's heirs sold Water Island to the Danish East Asiatic Company for $21,000 in 1905. In 1917, the United States Government bought the Virgin Islands from Denmark, although Water Island continued to be owned by the East Asiatic Company until 1944, when the US acquired it for $10,000.

In the 1940s the US government established a defense installation called Fort Segarra. The fort included barracks, gun emplacements, watchtowers and underground bunkers. Also established were docks, roads, water, sewage and power systems. The fort was going to be used to protect other military installations on neighboring islands. Construction came to a halt when World War II ended. The Army's Chemical Warfare Division used sections of the island for several years as testing grounds for poisonous gases.

In 1950 the island was turned over to the Department of the Interior who leased it to a private developer by the name of Walter Phillips. The annual rent for the island was $3,000 dollars. The lease was for 20 years and the developer constructed a hotel and homes on Water Island. The lease was renewed in 1972 for another 20 years. Walter Phillips sold the master lease for Water Island in December 1965 to the Water Isle Hotel & Beach Club under the ownership of Edward McArdle. McArdle expanded the hotel, and built/sold some private villas. In 1989 Hurricane Hugo severely damaged the hotel, and it subsequently closed. The lease ran out three years after the hurricane, on December 31st, 1992.

The decision was made to transfer ownership of Water Island from the federal government to the Virgin Islands' government. Water Island was transferred to the territorial government on December 12th, 1996.

Residents of Water Island were allowed to purchase the land and homes that they occupied. Today Water Island exists as a somewhat private island to its residents. There are many plans for developing small commercial facilities. For now it remains un-commercialized. The island is 'cared for' with love by the residents who call it home and some intermittent aid from the Virgin Islands' government.