Tórshavn has received the honour where settlers established their first parliament (ting) in Tórshavn in 825 on Tinganes. Local tings were established in different parts of the islands.
This period saw many constructions and fortifications as pirate attacks were common during that period in Tórshavn. A small fort, 'Skansin', was built by the Faroese naval hero and trader Magnus Heinason at the harbour's north end. Many inhabitants came in search of work to Tórshavn, where fishing became their livelihood.
In 1655, king Frederick III of Denmark gifted the Faroe Islands to his favourite statesman Kristoffer Gabel, the ruler of the von Gabel Family. This Gablatíðin was the darkest chapter in the history of Tórshavn that covered up the islanders in various ways.
As the trade monopoly was in the family's hands, it greatly affected the lives of the Faroese people. They faced real bad times even to sustain their day-to-day living. The imported goods were limited and costly.
The unfair conduct by the civil administration in Tórshavn, the monopoly trade, and major devastation due to a fire outbreak burnt many houses to the ground, where old Faroese records and Gabel's documents were lost.
In 1709, conditions improved in Tórshavn when the trade monopoly became a royal monopoly where goods were supplied from Copenhagen thrice a year. During the same period, the city was hit by smallpox that considerably reduced the population.
Tórshavn truly started to develop into a small town during the latter half of the 18th century. The era of Niels Ryberg stabilised trade and economy and filled the warehouses with goods. Besides this, he even started earning profit from fishing, which later became the most important economic factor to the islands.
Free trade came to the Faroe Islands in 1856 that opened the islands up to the world. It was the beginning of a transformation for the Tórshavn's economy. In 1866, the town's council was founded, and later, in 1909, it became a market town with the same municipal charter as Danish market towns. The modern harbour built in 1927 helped larger ships to berth.
Tórshavn slowly flourished in 1974, and the neighbouring villages Hoyvík and Hvítanes and other villages joined the Tórshavn municipality. Tórshavn's Cathedral, first built in 1788 and then rebuilt in 1865, has been the seat of the Bishop of the Faroe Islands since 1990.