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In 1674 the French East India Company set up a trading centre at Pondicherry and this outpost eventually became the chief French settlement in India. Five trading posts were established along the south Indian coast between 1668 and 1674. The city was separated by a canal into the French Quarter and the Indian Quarter.
During the Anglo-French wars (1742-1763), Puducherry changed hands frequently. On 16 January 1761, the British captured Pondicherry from the French, but it was returned under the Treaty of Paris (1763) at the conclusion of the Seven Years' War. In 1792, Venant of Durfort, son of the Count of Civrac, was made governor of Pondicherry, thanks to his uncle Emmanuel-Félicité, Duke of Duras, who had been made president of the Compagnie des Indes in 1788. After an outstanding military career in Europe, Venant fought hard to destroy all revolutionary hopes in Pondicherry, as republican ideals coming from France were threatening the economic stability of the region. He took great care to maintain commercial relations with other European powers in the region. His links with England were strengthened through his marriage with Catherine Browne of Kilmor. Venant died in July 1792 and was buried at Our Lady of Angels in Pondicherry. The British took control of the area again in 1793 at the Siege of Pondicherry amid the Wars of the French Revolution, and returned it to France in 1814. When the British gained control of India in the late 1850s, they allowed the French to retain their settlements in the country. Pondicherry, Mahdicherry, Mah, Yanam, Karaikal and Chandernagor remained a part of French India until 1954 when it was incorporated into the Indian Union with the rest of French India.
On 18 March 1954, a number of resolutions were passed by the municipalities in Pondicherry demanding immediate merger with India. Some days later, similar resolutions were passed by the municipalities in Karaikal. The resolutions had the full support of the French Indian Councillors, who are popularly known as Ministers, and the President of the Representative Assembly. These Municipalities represent roughly 90 percent of the population of the French possessions and they called upon the Government of France to take urgent and necessary measures to give effect to the wishes of the people. The Government of India had made it clear that the cultural and other rights of the people would be fully respected. They were not asking for the immediate transfer of the de jure sovereignty of France. Their suggestion was that a de facto transfer of the administration should take place immediately, while French sovereignty should continue until the constitutional issue had been settled. Both India and France would have to make necessary changes in their respective Constitutions. All this would take time, while the demand of the people was for immediate merger without a referendum. The Government of India was convinced that the suggestion which they made would help to promote a settlement, which they greatly desired. They would gladly enter into negotiations with the Government of France on the basis suggested.
On 18 October 1954 in a general election involving 178 people in Pondicherry Municipal and Commune Panchayat, 170 people were in favour of independence and eight people voted against. The de facto transfer of the French Indian territories from French governance to the Indian union took place on 1 November 1954 and was established as the union territory of Pondicherry. However, the formal de jure transfer of territory agreement between France and India was signed on 16 August 1962.