The Alluitsup Paa area was the southern point of a district known to the Norse as Vatnahverfi during the 10th–15th centuries. There are seven known sites from the Norse period within a few kilometres of the modern village, although the Norse generally preferred to settle further inland.

The settlement was founded as the trading station Sydprøven ("South Prøven") in 1830, to distinguish it from Nordprøven ("North Prøven", modern day Narsaq) which had been established earlier the same year. The Greenlandic name simply means "outside of Alluitsoq", further giving emphasis to the now-abandoned village of Alluitsoq.

Until December 31, 2008, the town was the second-largest population center of Nanortalik Municipality in the Kitaa amt. On January 1, 2009, Alluitsup Paa became part of the Kujalleq municipality, when the Kitaa amt, as well as the municipalities of Narsaq, Qaqortoq, and Nanortalik ceased to exist as administrative entities.

Before the municipal reform of 2009, Alluitsup Paa was Greenland's largest settlement without municipal status.

On the Uunartoq Island in the vicinity of the town there are geothermal springswith temperatures between 34 and 38 degrees Celsius.^[3] There are drifting icebergs and many whales offshore.

Qerrortuut Inuit ruins of previous settlements from late 18th and early 19th centuries can be found to the west of the village, on the same island.^[3] There are also ruins of a nunnery built near the hot springs after Greenland was first introduced to Christianity around 1000, and is the site where the Uunartoq Disc was discovered.