The earliest known antecedents of the race are medieval. The town's central piazza was the site of public games, largely combative: pugna, a sort of many-sided boxing match or brawl; jousting; and in the 16th century, bullfights. Public races organized by the contrade were popular from the 14th century onwards; called palii alla lunga [it], they were run across the whole city.

When the Grand Duke of Tuscany outlawed bullfighting in 1590, the contrade took to organizing races in the Piazza del Campo. The first such races were on buffalo-back and called bufalate; asinate, races on donkey-back, later took their place, while horse racing continued elsewhere. The first modern Palio (called palio alla tonda to distinguish it from the earlier palio alla lunga) took place in 1633.[1]

At first, one race was held each year, on 2 July. A second, on 16 August, was added from 1701, though initially, the August race was run intermittently rather than every year. The August race (il palio dell'Assunta), which coincided with the Feast of the Assumption, was probably introduced "spontaneously" as part of the feasting and celebration associated with this important festival. The date 16 August was presumably chosen because the other days of the mid-August canonical festival, the 14th and 15th of the month, were already taken up respectively by the Corteo dei Ceri (Procession of the Ceri) and by the census.

The August Palio started out as an extension of the celebrations of the July Palio and was organized and funded by July's winning contrada, though only if the contrada in question could afford it. After 1802, however, organisation and funding the August race became a central responsibility of the city, which removed annual uncertainty over whether or not an August Palio would run. It has been held at least since 15 August 1581 when 15-year-old jockey Virginia Tacci was the first female to ride a steed in the race.[2]

In 1729, the city's Munich-born governor, Violante of Bavaria, defined formal boundaries for the contrade, at the same time imposing several mergers so that the number of Sienese contrade was reduced to seventeen. This was also the year of the decree restricting to ten the number of contrade that could participate in a Palio; the restriction, which remains in force, resulted from the number and extent of accidents experienced in the preceding races.