Created in February 9, 1949 by virtue of Executive Order No. 204 promulgated by President Elpidio Quirino. Sagbayan has gradually grown over the years from a sleepy barangay of Clarin into a booming town in the central part of Bohol.

According to the founder of the town, the first settler in this locality was a guy named Sagbayan who came from Balilihan to escape punishment from cattle rustling. Other story says that people used to hang (sagbay) hides of deer on the trees to dry after their hunting expedition so the place was called Sagbayan, which is a place for hanging.

At the beginning of 1920’s Sagbayan was merely a jungle inhabited by monkeys and wild pigs and infested with malaria. Later, it became the center of trade of people from the interior and coastal towns. As the business flourished, people came to like the place and decided to make Sagbayan their new homes. As a result of the increase in population the prominent citizens of the barrio led by Baudillo Torrefranca petitioned the authorities to make Sagbayan an independent municipality.