Cafayate was founded in 1840 by Manuel Fernando de Aramburu, who fulfilled his mother's wish to dedicate a sanctuary to the Virgen de Rosario. As a result, Cafayate became more and more important compared to nearby San Carlos, to which it belonged administratively, so that in 1863 it separated from San Carlos and formed its own department. In 1969, Pope Paul VI established the Territorial Prelature of Cafayate with the Church of the Rosary as its cathedral.
Cafayate is a well-known and very popular wine-growing town. Some of the wineries are open to the public; there are guided tours and wine tastings. Some wineries have also started to offer accommodation on their wineries.
The ruins of Quilmes and Tafí del Valle are close to Cafayate. Also not far from the city is the Quebrada de las Conchas gorge, also called Quebrada de Cafayate.