The surroundings of Paldiski have been used as a harbour site since ancient times. The first permanent residents came to the islands and peninsula of Pakri in the 13th century. According to the legend, it was a prince of Sweden and his entourage. The advantages of Paldiski as a harbour site for big ships have been more recognized since the 17th century when the Swedish fleet used it as a stronghold.

In the political situation after the Great Northern War it was important for Russia to have a military stronghold on the northern coast of the Baltic Sea. The Russian navy searched the whole coastline for finding a suitable harbour site, and chose Paldiski as the location for its future port facilities. Paldiski had three major advantages compared to the other potential harbour sites: it was practically ice-free, extremely deep (essential for big ships), and protected from storms by the islands of Pakri. In 1718, Peter the Great built a naval port in the Pakri Bay. The settlement of Rogerwiek had arisen close to it, and in 1762 it was given the name Baltiyskiy Port (i.e., Baltic Port). The current name of the town is derived from it.

The importance of Paldiski as a commercial port increased even more in the 19th century. Paldiski became an outer port for Tallinn and St. Petersburg. Particularly in winter, the sea freight was transported further from here by trains. Due to such favourable harbour conditions, the Baltic Railway (completed in 1870) was extended to Paldiski. For a while the trading volumes increased even so much that Paldiski was the third commercial port in Russia. Until the October Revolution, Paldiski was a commercial port of national importance in Russia.

Today, Paldiski South Harbour (Lõunasadam) is one of the most rapidly developing harbours in Estonia.

In 2008, 3 815 376 tons of goods were handled in the Paldiski South Harbour, and 1405 ships visited it.