Quilali, located close by the Honduran border in the Isabelia mountains, has had a historical presence in the development of Nicaragua. Just south of the present town are the ruins of the Spanish mining town Nueva Segovia, founded by elderly conquistador Diego de Castañeda. He had been a founder of the first real mining town in the north, Santa Maria de Buena Esperanza in 1529. The Indians kicked the Spaniards out in a war in 1531. Castañeda sent back and founded Nueva Segovia where Santa Maria had been and immediately began successfully mining gold. The Indians kicked out the Spaniards in 1610, when they beheaded the last Spaniard, a unfortunate Captain Daza. Goldminers ventured back to Quilali sometime in the 1870s, and by the 1920´s it was a small mining village located on a flat topped mountain, surrounded by much higher mountains.
During the war with Augusto Sandino U.S. Marines ventured into the area and were promptly shot up. They receive almost half of all their casualties in the war with Sandino, 1927- 1933, around Ocotal and Quilali. Sandino´s mountain top fortress, El Chipote, was located on a mountain top located 12 kilometers north of downtown Quilali. Things quieted down until the 1970´s, when locals began revolting against Anastasio Somoza. They formed some of the first Sandinista units with the fall of Somoza. The garrison of Quilali revolted against the Sandinista government in May, 1980, and the Contra War began, with much fighting taking place around Quilali and its surrounding mountains. The war ended in 1990; soon after recontra guerrilla bands began a low level revolt against the Violeta Chamorro government. The largest group, called 380, demobilized in February 1994 at the Cualatú school house, located three kilometers from Quilali. Things have quieted down again, and the area produces significant amounts of fruits and grains for the population of the area.