The origins of Villanueva de Algaidas date back to the late 18th century, when the Duke of Osuna, then the owner of the area, granted permission for the construction of the Convento de Recoletos de San Francisco de Asîs next to Burriana stream. This saw the arrival of a number of colonists who settled near the monastery and built a village hall from which to administer this scattered settlement, known as La Rincona, which stood close to the present-day district of La Atalaya (an ideal place to appreciate typical mountain architecture). The building of this Franciscan monastery began in 1566 on the orders of the Count of Ureña, who placed Fray Baltazar de San Pablo in charge of it, rewarding him with agricultural land with which to feed his congregation and aid the hermits and anchorites who inhabited the area.

As the years went by, the settlement began to grow, and districts such as Zamarra, Albaicîn and Parrilla appeared, which, reunified following the split from Archidona on the 26th of August 1843, created the village of Algaidas. The original seven areas that made it up were the three mentioned along with plus Solana, Convento, Atalaya and Herrera. Only Atalaya, Herrera and Padilla still survive as separate districts.

Alongside the monastery and cave church (12th and 13th centuries), the first houses were built by the agricultural settlers on sites barely one kilometre from present-day Villanueva. However, there are traces of earlier inhabitants, such as the necropolis on the hill of Loma del Viento, with its Megalithic grave that has become a highland symbol in the area.

The 7,400 hectares that make up Villanueva de Algaidas are widely scattered as a result of the divisions produced by the different estates. Most of the land is occupied by olive groves, the mainstay of the local economy. The area is also of immense synergetic value, as witnessed by the nearby Sierra del Pedroso and Sierra de Arcas, in which the members of the Hunting Society enjoy their favourite pursuit.

One exceptional resident of the village is the international sculptor Miguel Berrocal, who was named  favourite son of the village in 1992.