The area that later became the Albayzín was first populated by the Iberians, the original inhabitants of the Iberian Peninsula, with dispersed Roman settlements appearing later.

Little is known of its history before the arrival of the Muslim Berbers, so it is assumed that the city was abandoned after the fall of the Roman Empire until the founding of the Zirid Kingdom in 1013, when its Royal Palace was built with defensive walls and important Islamic buildings and temple, one of which was the city's Great Mosque.

The original city descended from what is now the Mirador of San Nicolás to the banks of the River Darró and was populated with luxurious houses and equipped with splendid public baths. During the Nasrid period, the streets were very narrow and the houses were small and clean. It had numerous cisterns, providing clean drinking water brought from far away using a sophisticated system of channels. Some of these aljibes survive to this day. There were also important palaces and houses of the Granada nobility.

After the Conquest by the Catholic Monarchs, the Albaicín was assigned to the Muslims as a place of residence. Other Christian neighbourhoods that originated in the Medina gained prominence and became the new commercial and cultural centre of Granada.

Following several Moorish uprisings, the Christian monarchy expelled all those who practiced the Muslim religion. The uprisings were fomented by zealous Christian priests who sought to eat away at the rights given to the population in the Santa Fe Accords when Granada was surrendered. Mosques were converted into churches and the district populated by Christians after the Moors were finally expelled in 1568.

These Christians often merged many tiny moslem houses into one to house larger families. This gave birth to the carmen a style of house unique to Granada, with a combination of house, garden and allotment enclosed within walls with the house itself open to the gardens. Today these carmens attract prices in the millions of euros.