It received its name from Matthew Flinders, who discovered it in January 1802. Flinders had sailed into the hazardous Archipelago of the Recherche, and found his ship surrounded by islands and rocks with nightfall coming on. Recounting the adventure, he wrote the following:
"The chart alone can give any adequate idea of this labyrinth of islands and rocks.... Seeing no probability of reaching a space of clear water in which to stand off and on during the night, and no prospect of shelter under any of the islands, I found myself under the necessity of adopting a hazardous measure; and with the concurrence of the master's opinion, we steered directly before the wind for the main coast, where the appearance of some beaches, behind other islands, gave a hope of finding anchorage. At seven in the evening we entered a small sandy bay; and finding it sheltered everywhere except to the south-westward, in which direction there were many islands and rocks in the offing to break off the sea, the anchor was dropped in 7 fathoms, sandy bottom. The master sounded round the ship, but nothing was found to injure the cables; and except the water being shallow in the north-west corner of the bay, there was no danger to be apprehended, unless from strong south-west winds. The critical circumstance under which this place was discovered induced me to give it the name of Lucky Bay."
In 2017 it was scientifically tested as having the whitest sand in Australia, possibly the World, knocking Hyams Beach NSW off its perch. (Coast Australia Series 3 Episode 1)