Formed from a picturesque fishing village, with a long history of settlement, Carvoeiro, or more commonly Praia de Carvoeiro, slowly developed into a tourist area in the municipality of Lagoa, owing to its number of sand beaches protected by cliffs. There are vestiges of human settlement dating to the Roman occupation of the peninsula, as well as early naval activity in the area.

From historical records, the earliest settlement originated in the name Caboiere, an old name for a hamlet of fishermen from the Islamic-medieval period. The region was historically unspared from frequent pirate and military assaults along the coast, with a number of naval battles occurring off the coast.

To the west of the town is the site of an old ruined fort, ordered built in 1670 as part of the coastal defenses of the Algarve. The fort is located in a semi-rural environment along the maritime coast, approximately 100 metres (330 ft) above sea level, on a strategic clifftop. Only a gate has survived till the present day. At the same site is the Shrine of Our Lady of the Incarnation, a chapel overlooking the sea, whose construction is said to have antedated the fort.

While not as old, another interesting place to visit is the Alfazima Lighthouse. Farol da Alfazina is built on the edge of the cape and it looks really interesting, being a square tower as opposed to the usual cylindrical shape, lined with white tiles. The design is comparable to the old lighthouse of Ponta dos Capelinhos and Ribeirinha (on the island of Faial in the Azores) or the Lighthouse of Cabo Sardão.

Aside from diving and other water sports there are many things you can do around town. Golf is one of the major offerings of the Algarve region, and at least four of the golf courses are very close to Carvoeiro.

Sightseeing is also a must when you are in such a place. Algar Seco, a few hundred meters along the coast east of the main square and beach, is a popular nature site where ocean wave erosion has carved out grottoes, islets and water-spouts.