The island was ceded by the Emperor of China to Great Britain in 1860. The island was initially used for quarrying by the British: Murray House, a British colonial-style building which has been transplanted from Central, Hong Kong to Stanley, is made from granite columns were imported from Manila and quarried on Stonecutter's Island.
Stonecutter's Island was captured by the Japanese Imperial Army on December 11, 1941, following heavy shelling. Merchant ships in the island's docks were scuttled, and demolitions were carried out at Kowloon Naval Yard and on the island. During World War 2, radio installations on the island were used by the Japanese, for military use, and to extend the range of tranmission of NHK Overseas Broadcasting Bureau.
Up to 30 June, 1997 the island served as a British Royal Navy base, but following the transition of sovereignty under the Sino-British Joint Declaration, a Chinese naval base is now located on Stonecutter's Island.