Dragør was founded in the 12th century, and grew quickly as a fishing port. In 1370, the Hanseatic League was granted some trade privileges in the town. Dragør continued to grow - as the home of one of the largest fishing fleets in the country and as a base for salting and processing fish.

The first part of the name, Drag-, refers to drawing (dragging) boats ashore. The ending -ør is common in Scandinavian placenames and means a beach covered in sand or gravel.

The area has a Dutch ancestry that is still much in evidence. In the early 16th century, King Christian II invited a group of farmers from the Netherlands — at the time a more agriculturally advanced nation than Denmark — to settle in the area and produce food for the royal household. Twenty-four families arrived. They and their descendants settled in the village of Store Magleby. Tensions between the Dutch farmers of the inland and the Danish fishermen and sailors at the coast are still detectable now, with a certain rivalry between citizens of Store Magleby and Dragør. The Dutch peasants delivered vegetables to the Amagertorv market in Copenhagen. Among their many other achievements they were responsible for introducing the carrot to Denmark. Dutch and Low German were still spoken on Amager until the 19th century.