The name "Otago" anglicises the Kai Tahu Maori dialect name "Otakou". The village of Otakou on the Otago Peninsula served as a whaling base during early years of European economic interest in the east coast of Murihiku around 1840.
The Otago Settlement, sponsored via the Free Church of Scotland, materialised in 1848 with the arrival of the first two immigrant ships from Greenock on the Firth of Clyde -- the John Wickliffe and the Philip Laing. Captain William Cargill, a veteran of the Peninsular War, served as the colony's first leader: Otago citizens subsequently elected him to the office of Superintendent.
Initial settlement concentrated on port and city, then expanded, notably to the south-west where the fertile Taieri Plains offered good farmland. The colony divided itself into two counties named for the Scottish independence heroes Wallace and Bruce.
The 1860s saw rapid commercial expansion after Gabriel Read discovered gold at Gabriels Gully near Lawrence and a gold rush ensued. Veterans of goldfields in California and Australia, plus many other fortune-seekers from Europe, North America and China poured into the then Province of Otago, swamping its Scottish Presbyterian character. Further gold discoveries at Clyde and on the Arrow River round Arrowtown led to a boom, and Otago became for a period the cultural and economic centre of New Zealand, if not of Australasia. New Zealand's first daily newspaper, the Otago Daily Times, originally edited by Julius Vogel, dates from this period.
The Province of Southland separated from Otago and set up its own Provincial Council at Invercargill in 1861. After difficulties, it was reabsorbed in 1870, but for local government is now considered a separate region.
Provincial government in New Zealand ceased in 1876, and the national limelight gradually shifted northwards.