Herodotos, the father of history, mentions that the native people of Kaunos were the Carians. The old generations of inhabitants believed that the early people came from Crete, where the same Carian language was spoken. According to one story, Miletos had  twins—a son and a daughter; the son was named Kaunos and the daughter Byblis. When the children grew up, Byblis fell in love with Kaunos. She decided to write a letter to him expressing her love. After she did, Kaunos felt only hatred, anger, and loathing, because her love was unnatural. Kaunos decided to leave Caria; he built a city, which was named after him. Byblis tried to commit suicide, jumping from a high rock, but nymphs pitied her and turned her into a spring. Her tears became a river.

Another legend contradicts this one: Kaunos was expelled from Miletos because of his unnatural love for Byblis. He arrived in Kaunos and built his city.

As they did elsewhere in Ionia in the middle of 6th century B.C., the Persians controlled Kaunos. The city later became a member of the Attica-Delos confederation. The inhabitants of Kaunos fought for independence until the victory of Xerxes against the Persians.

Kaunos was an important harbour and trading centre, located right by the sea. The city was later threatened by the silting of the harbour, and was eventually abandoned because of mosquitoes, which brought deadly diseases.

The theatre at Kaunos still commands attention today, with its construction and architectural style. It overlooks the ancient  harbour and the city. The baths are the best-preserved in Anatolia.

Kaunos was famous for trading salt, saltwater fish, and figs. It also played an important role in the slave trade.