The history of Lipsi is closely related to the history of the neighboring islands of Dodecanese, and particularly Patmos. According to excavations, Lipsi was first inhabited in the prehistoric times by the tribe of Cares. Various inscriptions and vessels from the ancient times have been found as well as a fortified town dating from the 4th century B.C. Such findings are hosted today in the small museum of Lipsi, in the Archaeological Museum of Rhodes and the National Archaeological Museum in Athens.
Apparently, the most flourishing period of Lipsi was in the Hellenistic times. During the Byzantine period, in the 11th century, the islands of Lipsi and Patmos were vested to Osios Christodoulos, after the decision of the Emperor Alexios I Komnenos. That time, many monks from Patmos came to live on Lipsi and many new monasteries were established, among them the Monastery of Panagia Harou that is considered the protector of the island today.
The main town of Lipsi was founded in 1669 by a Cretan man named Elias. That time many Cretans left Crete, after the Ottoman occupation, and resided in Dodecanese islands. Over time, Lipsi followed the historical course of the rest of Dodecanese and were eventually united to Greece in 1948.
In the early 20th century, a large immigration wave started and many locals left Lipsi and migrated to Australia and the USA. These immigrants have always supported their homeland and financed many public works on the island, including the road network and the reconstruction of the church of Agios Ioannis Theologos. Today about 700 people live permanently in Lipsi and their main financial sources come from fishing, agriculture, and tourism.