The favorable climatic conditions, the construction of hotels and resorts, foresting and maintenance of beaches have led to an intensive development of tourism. The village is located in the most protected part of the Losinj bay. The town lies mostly on the eastern, sunny side of the island.
The town was first mentioned in 1398, under the name Malo selo ("small village"). In 1868, it experienced its golden year. There were as many as eleven shipyards, and it became the place with the largest and most developed merchant marine in the Adriatic Sea, even ahead of cities like Rijeka, Trieste and Venice.[dubious– discuss] American author Kenneth Roberts observed that the little town, like some in southern Maine, seemed to have "produced a hundred seamen for each one produced elsewhere." Writing in 1938, Roberts said there were currently "four hundred sea captains living on Lussinpiccolo, which is about the size of Monhegan Island--captains of all sorts of vessels, from thirty thousand ton liners to hundred ton merchant brigs."
With the invention of the steam engine a stagnation in development ensues, and with the outbreak of the grapevine-disease peronospora. Mali Lošinj was under Austrian-Hungarian rule until 1918. After World War I, it was given to Italy. In 1947, it was incorporated into Yugoslavia. Its incorporation into socialist Yugoslavia led to mass emigration of the population. After World War II there were only 2,200 residents left. In 1991, it became part of present day Croatia.