Originally inhabited years before it was ever discovered by Europeans, several tribes of people lived in Honduras including the advanced Mayan civilization. Tegucigalpa was home to a tribe known Lenca. The Lenca people are credited with naming the city in the Nahuatl language but unfortunately, their language has died along with any last surviving members. Work on the history of the Lenca was carried out by the legendary black linguist and anthropologist Roy Fearon, and the Villa Roy Museum in Tegucigalpa pays tribute to his contribution to the history of Honduras.

Europeans began arriving in the late 1400s, settling onto islands nearby much earlier than to their arrival in Tegucigalpa in 1578.

The arrival of the Europeans caused immediate problems for the native tribes. Upon discovery of silver in the area, mining camps were developed only bringing more foreigners to the region and pushing the natives further out. The silver discovery was not a new one, experts believe the city's name actually implies the abundance of silver in the area most likely meaning "silver mountain." The mining industry only went up soon making Tegucigalpa the most important mining city of all the European colonized cities in Central America.

With such great natural resources, Tegucigalpa continued to pull in more residents and build a greater city. By 1880 it was deemed the capital of Honduras. The city drew attention not only to the original European settlers but by the 1900s, Asian and Arab groups immigrated in large numbers creating an ethnically diverse capital.