The small community is largely a satellite town of Valka. It has a railway station, and until international services were resumed in 2008, it was the terminus of trains running on the Riga – Lugaži Railway. Since 2008, however, all trains travel on from Lugaži and cross the international border into Estonia, terminating at Valga. From Valga a connecting train service is available through Estonia, to Tallinn, providing a direct rail link between the two capital cities of Riga and Tallinn.
Lugaži was first mentioned in the year 1344 when Luke Castle was built.