The most southerly point in Wales the 630 m (2,067 ft) long island of Flat Holm, just 8 km (5 miles) from Cardiff and Barry, was a retreat for monks in the Middle Ages. Since then it has acted as a sanctuary for Vikings, Anglo-Saxons, silver miners, smugglers and cholera victims. Fortified in Victorian times, and again in World War II, it is perhaps most famous for receiving the first ever radio message across water by Marconi in 1897. It is the most southerly point in Wales.

The need for a lighthouse on the island had been discussed for many years by leading shipmasters and by members of the Society of Merchant Venturers of Bristol when, in 1733, John Elbridge, a senior member of the Society, forwarded a petition to Trinity House setting out the dangers to navigation and the general desire for a light on the island. However, Trinity House informed Elbridge that no application had been made to the Crown for a light and at the same time the Corporation took steps to ensure that no light was erected other than in their name.

In April 1735, William Crispe of Bristol informed Trinity House that he had leased Flat Holm Island for 99 years from John Stuart, Earl of Bute, and wished to build a lighthouse at his own expense, but in the name of Trinity House. Crispe may have demanded too high a toll, or possibly he was not prepared to pay enough to build the tower considered essential for an efficient light by the Society of Merchant Venturers. At their meeting on 9 May his scheme was rejected.

At the end of 1736 sixty soldiers were drowned when a vessel was wrecked near the Holms, and this gave added impetus for further negotiations to erect a light. On 17 March 1737 William Crispe attended at the Hall of the Merchant Venturers with new proposals. The merchants then agreed to support a petition to Trinity House and this was submitted to Trinity House on 2 April. In the petition Crispe stated that the society of Merchant Venturers required the following tolls:

For all Bristol ships to or from foreign parts 1½ pence per ton both inward and outward, according to their reports of tonnage at the custom house, and double these dues on foreign ships. For all coasting vessels to or from Ireland 1 pence per ton: vessels from St. David's Head or Lands End up the Bristol Channel (market boats and fishing boats excepted) one shilling for every voyage inward and one shilling outward".

The Merchant Venturers insisted that Crispe should lay out not less than £900 for the building of the tower. This he said he would do, and also that he would pay the expenses of Trinity House in obtaining the Crown patent for the light. In return he would expect to be granted a lease at a yearly rental of £5. The Corporation agreed at their next meeting on 9th April, 1737, to apply for a patent and grant him a lease from the kindling of the light to Lady Day 1834, when the lease had expired at a yearly rental of £5 for the first thirty years and thereafter at £10 for the remainder of the term. The lease was finally signed and a light was first shown on 1 December, 1737.

Owing to the increased cost of the structure William Crispe took on a partner, Benjamin Lund, but their joint funds were insufficient - even with loans secured from John Elbridge - and they were very soon bankrupt. To settle their debts they surrendered their lease to Caleb Dickenson. Dickenson later accepted the posts of collector of the dues of the Flatholm Light, the management of the light, and keeper of the accounts.

On the night of 22 December, 1790, a gale of exceptional violence occurred which caused considerable destruction in the West of England and the top of the tower considerably damaged. Until repairs were effected a fire was maintained on the headland in front of the lighthouse. Bristol traders, however, continually complained of the inadequacy of the light. It appears that the owners of the lighthouse enjoyed a large income from it yet refused an additional £100 a year to make it a reasonable aid to shipping.

On 17 November, 1819, Trinity House signed an agreement with William Dickenson, the principal lessee of the lighthouse, by which they undertook to alter and maintain the light for an annual payment of £400 for the remained of the lease when the lessees would surrender the property and lights due to them. The Corporation then took over the tower and premises and their surveyor prepared plans for the alterations. The massive circular stone tower was now increased in height from 21 m (69 ft) to 27 m (89 ft) in order to make a suitable base for the lantern which held an Argand lamp. The new light, petitioned for so many years, was first exhibited on 7 September 1820 as a fixed white light.

In July 1822 an Act was passed by George IV which empowered the Trinity House to purchase outright the leases of any coast lights and Flatholm was one of the several which Trinity House decided to acquire. The value of the remaining twelve years of the lease was computed at £15,838.10 which was accordingly paid to William Dickenson and his executors, and Trinity House took possession of the light as from 21 March, 1823.

In 1825 further improvements resulted in the installation of a fountain oil lamp and the raising of the lantern by another 1.5 m (5 ft). Another improvement in the light was made in 1867 when a new lantern 4 m (13 ft) in diameter was installed, which remained in use until 1969. The light was converted to occulting in 1881 by the installation of a clockwork operated mechanism. Subsequent improvements were the installation of a Douglass incandescent burner in 1904 and its replacement by a Hood petroleum vapour burner in 1923. In 1908 a powerful compressed air fog signal having two horns was installed in a separate building erected for the purpose.

As part of a series of demonstrations for the Britisg Government, Marconi sent the first ever wireless communication on 13 May 1897. It transversed the Bristol Channel from Lavernock Point to Flat Holm Island, a distance of 6 km (3.7 miles). The message read "Are you ready".

In February 1902 Flatholm was the scene of a remarkable phenomenon. During the night a shower of mud fell on the island and the glazing of the lighthouse was covered with a dirty white coating which stuck to the glass like glue and was only removed with great difficulty. A quantity of fine dust, believed by meteorologists to have been carried in the atmosphere from the Sahara Desert, fell on an area of about 0.5 million hectares (2,000 sq miles) of South West England. The mud that covered the lighthouse lantern was some of the dust converted into slime by rain clouds.

In 1929, Flatholm Lighthouse was converted to a rock station. Before then the keepers and their families lived on the island in two cottages adjacent to the tower. An additional keeper was also appointed to the establishment in 1929 increasing the number to four, thus enabling the men to serve three months on duty followed by one month free from duty. In more recent years, the lighthouse was manned by two sets of three keepers, each working one month in the lighthouse, followed by one month ashore.

Flatholm Lighthouse was automated in 1988 and the keepers were withdrawn. In 1997 it was modernised and converted to solar power. The lighthouse is now monitored and controlled from the Trinity House Operations Control Centre at Harwich in Essex.