It was founded by João Gonçalves Zarco in 1421 and was elevated to city status by King Manuel I of Portugal in 1508.

In the early 1400s, Álvaro Fernandes was the commander of Funchal.

In the 16th century Funchal was important as a stopping place between the Indies and the New World, and was known as a wealthy place. It was also the port for Madeiran sugar and wine.

Funchal is the capital of the Madeira Islands of Portugal. Funchal is also the largest city on the islands and with its neighbouring boroughs has over 150,000 inhabitants.

Funchal is located in a unique area; the natural geological features form an "amphitheatre" surrounding the city, which begins at the harbour and rises almost 1200 metres high on gentle slopes. This provides a natural shelter and was what attracted the first settlers.

Madeira's capital for more than five centuries, Funchal is said to have been named as such because of the abundance of fennel (funcho - in Portuguese) that was growing there.

Part of Funchal Municipality are the Savage Islands one nature reserve 160 km (100 mi) South of Funchal.

Funchal is bypassed by a superhighway to the north east and southwest which accesses to Santa Cruz, the Madeira airport and Ribeira Brava.