The town was founded in 1652 by Ebba Brahe, the widow of the military commander Jacob De la Gardie, and was granted city privileges by Queen Christina of Sweden. The Swedish name literally means Jacobs's City or Jacobs's Town. The town was founded at the old harbour of the parish Pedersöre and this name lives on in the Finnish name of the municipality, Pietarsaari.
The town became a focal point for the language issue in Finland in 2003. The municipality is divided between the Finland-Swedish and the Finnish groups, where the Swedish group being a minority group in the country as a whole, constitutes a local majority. The schooling system is divided in Swedish and Finnish language schools, and when there arose a space allocation problem for the "language immersion schools" the Swedish dominated city council decided to move the pupils of a Finnish language primary school to solve the problem. In practice the decision meant that a hunded Finnish speaking pupils had to move to new quarters, instead of sharing quarters with Swedish speaking pupils.
It was been agreed that the space allocation problem had to be solved and that the Finnish school had excess space, but it was percieved that the local majority abusing their position. The decision was made with six votes to five in the city council and appeals were made to the office of Finland's Chancellor of Justice, which as of November 2003 still is pending.