The beginnings of Mali Losinj most certainly date back to the l2th century, maybe earlier, but there is a lack of sufficient reliable data. What is known, however, is that about a dozen Croatian families came to the island of Losinj from Hungary, fleeing from the Mongols, and they settled in its eastern bay, St. Martin, on the slopes of the hill above the bay. Since the primary economic activity of the Croat settlers was cattle-raising and agriculture, their houses were built above fertile gardens (the area called Gravot).

The whole settlement underwent the transition from an agricultural and cattle-raising way of life to fishing, navigating and shipbuilding. The golden age of Mali Losinj was the end of the 19th century when, thanks to the sea and navigation the "Malo selo" ("Small Village") became a coastal town.