Ancient Potidaion, or Poseidion, as named by the Roman geographer Claudius Ptolemy, was located on the site occupied by the modern capital of the island of Karpathos, at the cove of Pigadia. In the Hellenistic period, the town depended on and was the haven of Karpathos, one of the island's three ancient cities (the other two were Arkeseia and Vrykous). Potidaion flourished in the Roman and Early Christian period.

Surface finds date the earliest occupation phase to the Late Neolithic/Early Bronze Age. A stone statuette of a female deity, now on display in the British Museum, belongs to this period (ca. 3000 BC). An important settlement developed in the coastal plain southwest of the current Provincial Building in the Minoan and Mycenaean periods. Its earliest phase dates from the Middle Minoan/Late Minoan IA period, and recent excavations revealed building remains and three furnaces of the early Mycenaean phase (Late Helladic IIIA- IIB) for the first time. A Mycenaean acropolis probably occupied the Vounos hill, above the port of Pigadia, where all of the surviving remains, however, belong to the Hellenistic acropolis. The cemetery occupies the sites of Anemomyloi, Skopi, and Makelli to the southwest. Here, a Late Helladic IIIA/IIIB tomb discovered in 1949 yielded a large number of vases. There is also evidence for a second Minoan settlement at Vronti, at the north end of the Pigadia cove.

During the historical period, Potidaion was probably limited to the plain surrounding the port. The earliest archaeological finds for this phase date to the Hellenistic period, when the island's cities were annexed by the Rhodian state. Inscriptions refer to the city of Karpathos as the Municipality of the citizens of Karpathos. The Hellenistic acropolis of Potidaion, where epigraphical evidence places a temple of Athena Lindia and a public sacrificial area (ierothysion), was located on the hill northeast of the modern port. Sporadic tombs indicate that the cemetery probably occupied the nearby slopes. A monumental rock-hewn tomb is preserved at Myli, southwest of Pigadia, and two rock-hewn rural shrines are located south of Pigadia. A decree issued in honour of Pamphylidas of Karpathos, son of Hieron, for repelling together with the people of Potidaion an attack by Cretan pirates in the second century BC, demonstrates Potidaion's important defensive role in the Hellenistic period.

The town thrived in the Roman period thanks to its natural harbour and to the favourable conditions created by the Pax Romana - Claudius Ptolemy calls it a city in the second century AD. The discovery of three Early Christian basilicas in the vicinity indicates that Potidaion continued to develop during the Early Christian period (fourth-sixth centuries AD). The basilica at the southwest foot of the acropolis is no longer visible. The other two are located on the western coast of the Pigadia cove: the basilica at Afoti is open to the public, whereas the basilica at Vronti is still being excavated.

In the troubled centuries that followed, Potidaion was abandoned and its residents moved to Aperi, where the city of Karpathos is believed to have been located. The coastal site was re-inhabited in the late nineteenth century, and Poseidion has been the island's capital since 1894.