There are numerous stories about the name Alaçatı. According to some, Alaçatı is the name only for the harbour area which is about two kilometers from the old town. Some claim that the name for the town was Agrilia, and there is also another name Alaca At (Red Horse) used for the whole area. Their claim is based on a story, that the ruler of Alaçatı had a red horse to ride. When riding the horse, bystanders would refer to him as "Alacaatlı (the man with the red horse)", in time the name was somehow changed to Alaçatı. During the exchange of ethnics between Balkan countries and Turkey, Turkish refugees from the Balkans were settled here, and ever since then the name Alaçatı has been adopted both for the town and the harbour area. The harbour area was the export port of İzmir until World War II. After the war the harbour's use declined, and the bay, in which the harbour was, is now popular with windsurfers.

Alaçatı became an Ottoman town in the 14th century, according to some; in the 15th century, according to others. Regardless of the date, it is a well known fact that Alaçatı was a Rum (Roman/Greek Orthodox) settlement area. The Moslem population was 132 out of a population of 13,845 in 1895. After the defeat of the Ottomans in the Balkans, Moslem refugees fled to the western coast of Anatolia. The first reaction to the defeat in Anatolia came from the Rums in Çeşme as they made a decision to leave Çeşme to settle in the island of Chios. Thousands of them sailed across to the island in small boats, although later Greece sent passenger boats to carry people across to Greece. It is said that, most of the refugees came and settled into the houses emptied by the Rums. Most of these houses still remain in Alaçatı as an attraction for people to see and absorb the feeling of life in the past.