Formerly a barrio of Cauayan, Sipalay had the distinction of having been used as a garrison for Spanish soldiers guarding the southern corridor of Negros Island. Original immigrants of the place came from the island of Panay, the town being just across a short sea span from what is now Iloilo. When the new settlers arrived, they drove away the natives to the mountains.

No roads existed during the time, and trading was easier with Iloilo and Panay through sailboats. When the Americans came, development was introduced with the putting up of schools and roads. Literacy among residents was improved.

Sipalay became a lookout point when the Japanese occupied the country, with the town being used as an outpost by the guerillas.

It was also in Sipalay, in Campomanes or Maricalum Bay, where the first American submarine landed to deliver arms and supply for the forces commanded by airman-hero Col.Jesus Villamor. The staging of the final fight with the Japanese jumped from this point when sufficient supplies shipped from Australia arrived.