In 1882, Kudat was established as the first capital of Sabah after the British North Borneo Chartered Company leased the territory of Sabah from the sultans of Brunei and Sulu.

The Rungus-the indigenous tribe on the Kudat peninsula and on the east side of Marudu Bay-made their home inland, while the coastline attracted Muslim Bajau, Irranun and Suluk. The Rungus called the Kudat area after the Tomborungus River that ran into an inlet nearby.

When the British arrived and asked for the name of the place, the Rungus thought they wanted to identify the coarse grass growing there, so said Kutad. Eventually, the name was corrupted to Kudat, and was used in preference to the old name of Tomborungus. Because of a labour shortage, the British North Borneo Charted Company engaged the basel Missionary Society to bring in families of Christian Hakka from southern China to help develop Kudat.

The first pioneers arrived in 1883, followed by a steady flow of Hakkas who cleared the jungles to establish coconut plantations and small farms. They built their own homes, churches and schools. In the early years of 20th century, they began planting rubber. Although other Chinese groups eventually made Kudat their home, the district remains dominated by Christian Hakka and the Basel Church.

Accessible primary by sea until less than 50 years ago, when a road eventually linked Kudat with Kota Kinabalu, Kudat's past isolation has ensured that much of the original charm and traditional of the region remain relatively unchanged.