Colaba was one of the original seven islands of Bombay. Gerald Aungier took possession of Colaba and Old Woman's Island in 1675. In 1743, Colaba was leased to a Richard Broughton at Rs. 200 per annum, a lease that was renewed in 1764. Colaba was well-known for the variety of fishes in the nearby waters. The bombil, called Bombay duck after being dried, rawas, halwa, turtles, crabs, prawns and lobsters, could all be found here. By 1796, Colaba became a cantonment for troops. At the southern end of the island, called Upper Colaba, a meteorological observatory was established in 1826. This was on the eastern side of the island. With the completion of the Colaba Causeway in 1838, these remaining two islands were joined to the others. The price of land shot up. Colaba became a centre of commerce with the opening of the Cotton Exchange at Cotton Green in 1844. The Causeway was widened and strengthened in 1861 and again in 1863. It became a separate ward of the Municipality in 1872.
Civil constructions in Colaba did not push out the troops. During this period the Sick Bungalows, now known as INS Ashwin, were built. Work on the church of St. John the Evangelist was begun in 1847. The church, now known as the Afghan Church (after the First Afghan War of 1838) was consecrated in 1858 and work on the steeple was concluded in 1865.
Transport to this end of the new town was revolutionised by the introduction of horse-drawn tram-cars in 1873 by Stearns and Kitteredge, who had their offices on the west side of the Causeway, where the Electric House now stands.
The Prong's lighthouse, at the southern tip of the island, was constructed in 1875. Also in the same year, the eponymous Sassoon Docks were built by David Sassoon on reclaimed land. The BB&CI Railways established their terminus in Colaba. These developments pushed the indigenous kolis to the edges of the island, near the Sassoon Docks and to the west.
90,000 square yards (75,000 m²) of land were reclaimed on the western shore of Colaba by the City Improvement Trust. The work was opposed by eminent citizens like Sir Pherozeshah Mehta, on the grounds that such a large area of land coming on the market would depress prices. The work was nevertheless carried out, and completed in 1905. Land prices did not fall. A seafront road along with a raised sea-side promenade (the Parade, named after T. W. Cuffe of the Trust) were completed the next year.