The first European to sight the island was Richard Rowe of the Thomas in 1615.

Captain William Mynors of the Royal Mary, an English East India Company vessel, named the island when he sailed past it on Christmas Day, in 1643.

The island was included on English and Dutch navigation charts as early as the beginning of the 17th century, but it was not until 1666 that a map published by Dutch cartographer Pieter Goos included the island.

English navigator William Dampier, aboard the English ship Cygnet, made the earliest recorded visit to the sea around the island in March 1688. He found it uninhabited. Dampier gave an account of the visit which can be found in his Voyages. Dampier was trying to reach Cocos from New Holland. His ship was blown off course in an easterly direction, arriving at Christmas Island twenty-eight days later. Dampier landed at the Dales (on the west coast). Two of his crewmen became the first Europeans to set foot on Christmas Island.

Captain Daniel Beeckman of the Eagle passed the island on 5 April 1714, chronicled in his 1718 book, A Voyage to and from the Island of Borneo, in the East-Indies.

The first attempt at exploring the island was in 1857 by the crew of the Amethyst. They tried to reach the summit of the island but found the cliffs impassable.

Among the rocks obtained and submitted to Murray for examination were many of nearly pure phosphate of lime. This discovery led to annexation of the island by the British Crown on 6 June 1888.

From the outbreak of the South-East Asian theatre of World War II, Christmas Island was a target for Japanese occupation because of its rich phosphate deposits. The first attack was carried out on 20 January 1942, by Japanese submarine I-59, which torpedoed a Norwegian freighter, the Eidsvold. The vessel drifted and eventually sank off West White Beach. Most of the European and Asian staff and their families were evacuated to Perth.

In late February and early March 1942, there were two aerial bombing raids. Shelling from a Japanese naval group on 7 March led the district officer to hoist the white flag. But after the Japanese naval group sailed away, the British officer raised the Union Flag once more.

During the night of 10–11 March, a mutiny of the Indian troops, abetted by Sikh policemen, led to the killing of the five British soldiers and the imprisonment of the remaining 21 Europeans.

At dawn on 31 March 1942, a dozen Japanese bombers launched the attack, destroying the radio station. The same day, a Japanese fleet of nine vessels arrived, and the island was surrendered.

Isolated acts of sabotage and the torpedoing of the Nissei Maru at the wharf on 17 November 1942 meant that only small amounts of phosphate were exported to Japan during the occupation.

In November 1943, over 60% of the island's population was evacuated to Surabayan prison camps, leaving a total population of just under 500 Chinese and Malays and 15 Japanese to survive as best they could.

In October 1945, HMS Rother re-occupied Christmas Island.

At Australia's request, the United Kingdom transferred sovereignty to Australia, with a $20 million payment from the Australian government to Singapore as compensation for the loss of earnings from the phosphate revenue. The United Kingdom's Christmas Island Act was given royal assent on 14 May 1958, enabling Britain to transfer authority over Christmas Island from Singapore to Australia by an order-in-council.

Under Commonwealth Cabinet Decision 1573 of 9 September 1958, D. E. Nickels was appointed the first official representative of the new territory.

Australia's Christmas Island Act was passed in September 1958 and the island was officially placed under the authority of the Commonwealth of Australia on 1 October 1958.

In a media statement on 5 August 1960, the minister for territories, Paul Hasluck, said, among other things, that, "His extensive knowledge of the Malay language and the customs of the Asian people... has proved invaluable in the inauguration of Australian administration... During his two years on the island he had faced unavoidable difficulties... and constantly sought to advance the island's interests."

In 1968, the official secretary was retitled an administrator.

Phosphate mining had been the only significant economic activity, but in December 1987 the Australian government closed the mine.

In 1991, the mine was reopened by a consortium which included many of the former mine workers as shareholders.

With the support of the government, the $34 million Christmas Island Casino and Resort opened in 1993 but was closed in 1998. As of 2011, the resort has re-opened without the casino.

Since 1997, Christmas Island and the Cocos (Keeling) Islands together are called the Australian Indian Ocean Territories and share a single administrator resident on Christmas Island.

The Australian government in 2001 agreed to support the creation of a commercial spaceport on the island, however, this has not yet been constructed and appears that it will not proceed.

In 2001, Christmas Island was the site of the Tampa controversy, in which the Australian government stopped a Norwegian ship, MV Tampa, from disembarking 438 rescued asylum-seekers. The ensuing standoff and the associated political reactions in Australia were a major issue in the 2001 Australian federal election.

The Howard government operated the "Pacific Solution" from 2001 to 2007, excising Christmas Island from Australia's migration zone so that asylum seekers on the island could not apply for refugee status. Asylum seekers were relocated from Christmas Island to Manus Island and Nauru.

In early 1986, the Christmas Island Assembly held a design competition for an island flag; the winning design was adopted as the informal flag of the territory for over a decade, and in 2002 it was made the official flag of Christmas Island.

In 2006, an immigration detention centre, containing approximately 800 beds, was constructed on the island for the Department of Immigration and Multicultural Affairs. Originally estimated to cost A$276 million, the final cost was over $400 million.

In 2007, the Rudd government decommissioned Manus Regional Processing Centre and Nauru detention centre; processing would then occur on Christmas Island itself.

In December 2010, 48 asylum-seekers died just off the coast of the island in what became known as the Christmas Island boat disaster when the boat they were on, hit rocks off Flying Fish Cove, and then smashed against nearby cliffs.

As of 20 June 2013, after the interception of four boats in six days, carrying 350 people, the Immigration Department stated that there were 2,960 "irregular maritime arrivals" being held in the island's five detention facilities, which exceeded not only the "regular operating capacity" of 1,094 people, but also the "contingency capacity" of 2,724.

The Christmas Island Immigration Reception and Processing Centre closed on 30 September 2018.

On 13 February 2019 the Morrison government announced it would re-open the Christmas Island Immigration Reception and Processing Centre centre, after Australia's parliament passed legislation giving sick asylum seekers easier access to mainland hospitals.

Christmas Island is a non-self-governing external territory of Australia, as of March 2019 administered by the Department of Infrastructure, Regional Development and Cities .