The history of Chania starts in the Neolithic era , when the first settlement was founded on the low hill Kasteli which today stands above the Venetian port . The hill was an optimal place as it offered safety to the settlement. Places in altitude were in general often selected for settlements as they offered advantages such as view of possible enemies and difficult access to invaders, especially if there are cliffs in the area.
Archaeological research has shown that modern Chania city is built on the ruins of ancient Cydonia . There are many possible derivations for the name of the ancient city. It may be a corruption of Chthonia , one of the ancient names of Crete island. The name Chania could also be a corruption of Chthonia . Other possible derivations of Chania are the Arab word Chani , which means inn, or the Alchania Komi , which was a suburb or a district of Cydonia .
In legend Cydonia was founded by King Cydon , son of King Minos and Akakallis. Cydonia is mentioned in Homer as one of the most important Cretan cities and the Cydonians are considered a prehellenic tribe. Ancient writers considered Cydonia the first among the other Cretan cities.
Excavations in the area of ancient Cydonia have uncovered many tombs, pottery of various periods, Mycenaean gems, a Minoan Hall, Late Minoan frescoes, part of a stirrup jar inscribed in Linear B , three clay tablets inscribed in Linear B , Roman statues, a beautiful mosaic of the Late Hellenisic period and other important finds.
The finds show that the area has been an important settlement with continuous inhabitation since the Neolithic era .
During the Minaon period, Cydonia became the most important city in western Crete . Its port was small, yet very important for the Minoans , who were primarily a mercantile people highly engaged in sea trade.
Ancient Cydonia became a very rich trade city. Its significant Minoan palace lies under the center of the modern city of Chania and remains unexcavated.