The club was founded in 2001 under the name FK Ditton by a Latvian business-man Vladislavs Drīksne. Within the space of decades the club had progressed from the local championship of Daugavpils to the Latvian Higher League. Ditton made their debut in the top tier of Latvian football in 2004. The debut was not successful, though, and Ditton were relegated from the Latvian Higher League.
They started the 2005 season with a young team, but later some experienced players were added to the squad and Ditton managed to regain a place in the higher league. In 2006 Ditton were taken over by new investors. Ukrainian manager Sergei Yuran was invited to join the team staff, but he was soon replaced by Sergei Kiriakov. That season the club achieved their highest position to that point, finishing 5th in the championship.
At the end of 2006, Russian businessman Igor Malishkov became the main shareholder in the club. It was his decision to change the club's name to FC Daugava. Meanwhile he also created a plan to develop the infrastructure of the club and build a new stadium. Malishkov invited Sergei Petrenko, who was then famous for his success with Torpedo Moscow, to become the manager of the team. Petrenko left in May 2007 for family reasons. In June 2007 Igor Gamula was appointed, but he only started managing the team in August 2008. Till then the incumbent manager was Mihails Zemļinskis.
On 19 July 2008 the Daugava Stadium was officially opened. That year the club won the Latvian Cup for the first time in its history. On 8 February 2009, due to financial problems, FC Daugava merged with Dinaburg and formed one team under the name of Dinaburg for the 2009 season. That season Dinaburg were relegated from the Latvian Higher League due to suspicions of participation in match fixing. Daugava then decided to create a team that would play in the Latvian First League the following season, meanwhile Dinaburg ended its existence, stating that the club's image was spoiled. As Daugavpils is one of the biggest cities in Latvia, the LFF came up with a proposal to offer Daugava a place in the Latvian Higher League. The offer was accepted and Daugava were given a chance to represent Daugavpils in the higher league in the 2010 season.
In 2011 the club achieved its best result until then, finishing third in the championship. In 2012 Daugava became the champions of the Latvian Higher League for the first time in the club's history.
In July 2013 Federbet organization expressed its concerns in regards to possible match fixing attempts concerning Daugava's UEFA Champions League game against IF Elfsborg, which the club lost 7-1, with 7 goals being scored in the second half. Prior to the 2014 Latvian Higher League season Daugava was initially denied the participation license due to non-existing youth academy but it was later obtained in exchange of promises to develop one in the near future. In October 2014, during a spot-check at the club, several of its members were interrogated, with the club's former president Oleg Gavrilov being arrested for money laundering, legalization of illegal earnings and other crimes, including ignorance of the previously imposed disqualification upon him from any activates affiliated with Latvian football. Four other people, including the club's technical director, manager and two players were disqualified for an indeterminate period of time till the end of the investigation. The investigation is currently still in progress and is lead in cooperation of the Latvian Football Federation, UEFA and the State Police of Latvia.