Brazil was discovered by accident when a Portuguese expedition to India, led by Pedro Alvares Cabral, swung too far westward in 1500. It remained virtually ignored by the Crown for twenty-five years because it lacked the rich trade cities found in Asia and it had no ready supplies of precious metals. Furthermore, there were no indigenous empires to manipulate, as there were in Mexico and Peru, and the native population was too few in number to provide a dependable source of slave labour. The discovery of Brazil wood, the source of red dye, much in demand by the European textile industry, was incentive for founding the colony and provided its name. The fear that Brazil might fall into French hands accelerated settlement efforts by the Portuguese Crown.

By 1533 the Crown began to follow the precedent of the Portuguese Atlantic colonies of Madeira and the Azores, by placing the burden of the cost of colonisation on the shoulders of private individuals. These individuals were noblemen who incurred the cost of pioneering settlement in exchange for extensive powers and privileges granted to them by the Portuguese Crown. The noblemen received the hereditary title of captain and lord proprietor (donatário) of his area and agreed to administer and develop the territory. This institution was known as the donatary captaincy and evolved in the Atlantic colonies to facilitate the production of sugar on large sugar mill plantations. Portuguese colonists proved to be adaptable and had no single preconceived imperial policy. They used whatever techniques were appropriate to gain their objectives whether it was conversion, co-operation, threats, or force.

In 1549 the Crown sent an expedition to establish a royal government in Brazil. This expedition included six Jesuits, the first of the regular Catholic orders in Brazil. The Jesuits and the royal government collaborated to firmly establish a centralised government and a missionary church whose primary goal was the conversion of the indigenous population. This proved to be difficult and the Jesuits began bringing "Indians" (Columbus' highly inaccurate term) to live in Jesuit controlled villages designed according to a European model. The Indians often chose flight rather than the regulated life of the Jesuits. It was clear by 1570's that the Indian population was not a dependable source of labour for the expanding sugar complex, thus African slaves became the primary source of labour in Brazil. By 1600 the transition to African labour in the sugar plantations of coastal Brazil was complete and Brazil became the world's leading sugar producer.

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