The settlement of Dubai town is known from 1799. The sheikh (Arabic: shaykh) of Dubayy, then a minor, signed the British-sponsored General Treaty of Peace (1820), but the area was seemingly dependent on Abū Ẓaby until 1833. In that year, a group of Āl bū Falāsāh clansmen of the Banī Yās, chiefly pearl fishers, left Abū Ẓaby in a rivalry dispute and took over Dubai town without resistance. From then on, Dubayy became, by local standards, a powerful state and was frequently at odds with its former rulers. The Qawāsim pirates tried to take control of Dubayy, but its rulers retained their independence by playing the neighbouring sheikhdoms against each other. Together with the rest of the original Trucial States, Dubayy signed with Britain a maritime truce in 1835 and the Perpetual Maritime Truce in 1853. Its foreign relations were placed under British control by the Exclusive Agreement of 1892. When Britain finally left the Persian Gulf in 1971, Dubayy was a prominent founding member of the United Arab Emirates.

The sheikhs of Dubayy, unlike most of their neighbours, long fostered trade and commerce; Dubai was an important port by the beginning of the 20th century. Many foreign merchants (chiefly Indians) settled there; until the 1930s it was known for pearl exports. More recently, Dubai (including its twin city and commercial centre, Dayrah, on the opposite side of the creek) has become the region's chief port for the import of Western manufactures. Most of the United Arab Emirates' banks and insurance companies are headquartered there. After the devaluation of the Gulf rupee (1966), Dubayy joined the country of Qatar in setting up a new monetary unit, the riyal. In 1973 Dubayy joined the other emirates in the adoption of a national currency, the dirham. Dubayy has free trade in gold, and there is a brisk smuggling trade in gold ingots to India, where gold imports are restricted.

In 1966 the offshore oil field of Fatḥ (Fateh) was discovered in the Persian Gulf about 75 miles (120 km) due east of Dubai, in waters where the state had granted an oil concession. By the 1970s three 20-story submarine tanks, each holding 500,000 barrels, were installed on the seabed at the site. Shaped like inverted champagne glasses, they are popularly called the “Three Pyramids of Dubayy.” Dubayy's estimated oil reserves are less than one-twentieth those of neighbouring Abū Ẓaby, but oil income combined with trading wealth has made Dubayy a very prosperous state. A number of industrial plants, including an aluminum smelter and an associated natural gas fractionator, were built in the late 1970s near Dubai. Since the late 1980s aluminum production has greatly increased through a number of staged expansions of the smelter's facilities.