Spanish explorers originally discovered a shallow bay with a narrow inlet from the Gulf in the 1500s. They found the area around it settled by Creek, Choctaw, and Seminole Indians. Legend reports that this bay provided the Spanish with a relatively "hidden" place to hide from pirates and to bury their treasures. When the Spanish returned to the area some years later they could not find their bay; apparently a storm had closed the inlet. They named the bay "Perdido Bay" meaning lost bay in Spanish.

Eventually the land area around the bay saw increased settlement, with land grants given as gifts by the King of Spain. The area was considered prime country with plentiful game and fishing, virgin pine forests, and fertile land. Early business enterprises consisted of turpentine manufacturing, logging, saw milling, and raising cattle, and trading and marketing was coordinated mostly through Pensacola. Perdido Bay was rediscovered and considered a fresh water bay resulting from the outflow of the Perdido River and several other smaller estuaries. Eventually fishermen, wishing to enter the Gulf from the bay, cut a narrow channel through the sand. This eventually became the permanent channel at Alabama Point.

Much of the land in what is now Lillian, as well as elsewhere around the bay, was given via Spanish land grants, and one of the oldest historic landmarks is a 16th century Spanish cemetery that is still maintained within the Spanish Cove community. The original settlement where the current highway 98 bridge lands in Alabama was named Lillian after the first Postmaster's daughter in the 1880s.

The Spanish Cove residential community was first developed in the 1970s to provide a variety of housing choices with a common set of recreational and environmental amenities. The subdivision consists of about 750 acres with four neighborhoods. The community began with the building of traditional houses on the bay side of Baldwin County 99 (called Bay Side), and eventually three more neighborhoods were created on the west side of highway 99: one of conventional homes (Spanish Oaks), one for manufactured housing (Perdido Pines), and one for RVs and Park Model homes (Land Harbor).

The web site logo is based on a photo of the first entrance sign for the Cove on the bay side. It marks the entrance to the bay side housing area and is located next to the Spanish Cove offices. The community offers two clubhouses, a pier and beach, a swimming pool, tennis courts, a volleyball court, shuffleboard, and miles of tree-lined, winding, paved, and patrolled private roads. Some type of flower is in bloom almost all year 'round, and the many mature hardwoods and pines throughout the community create a cool sense of privacy and natural beauty.