Signagi is located in the Kakheti region of Georgia, first settled in the Paleolithic period. Throughout its history Signagi or Sighnaghi was known to the local population as Kambechovani, and later as Kisikhi or Kisiki. The word Sighnaghi in the Turkic language means shelter or trench. Signagi as a settlement was first recorded in the early 18th century. In 1762, King Heraclius II of Georgia sponsored the construction of the town and erected a fortress to defend the area from marauding attacks by Dagestani tribesmen.

According to the 1770 census, 100 families, chiefly craftsmen and merchants, lived in Signagi. When Georgia was annexed by Imperial Russia in 1801, Signagi (Signakh) was officially granted town status and became a centre of the Signakh uyezd (Russian: Сигнахский уезд) within the Tiflis Governorate in 1802. In 1812, Signakh joined the rebellion with the rest of Kakheti against Russian rule. During the Caucasian War, the town "was considered an important point on account of its proximity to" Dagestan.

The town quickly grew in size and population and became an agricultural center in the Soviet Union. The severe economic crisis in post-Soviet Georgia heavily affected the town, but a major reconstruction project recently launched by the Government of Georgia and co-funded by several international organizations intends to both address an increasing tourist interest and modernize infrastructure.