The settlement of Caunos ancient city set along the edge of the Dalyan Channel which connects Koycegiz Lake to the Mediterranean sea, starts north of the harbour and ends up at the rocks top edge of Dalyan village. According to legend, the daughter of Milletos fell in love with his brother Caunos who did not reciprocated his sister Byblis’ love for him and Byblis hanged herself. After that, Caunos was exiled and established the city in the Caira region.

Caunos was first explored by Rd. Hoskyn. During his visit to the region, he found on the inscription was written 'Caunos's public and assembly' and he concluded this area belonged to the city of Caunos. The most important feature of this ancient city are the famous 'Rock Tombs' which still stand.

According to Strabo, there was a shipyard in Caunos and a harbour (known as Suluklu Lake today) below Acropolis (castle, city walls and city centre). It was a continental sea until Acropolis. Caunos ancient city was dominated by the Persians, Egyptians, Pergamon Kingdom and Roman Empire. It lost importance when the sea ebbed and Caunos port was filled with sand. Its north part of the city walls are the shapes of medieval remains. Caunos state theatre is located below the Acropolis. There are also Roman baths, temple, basilicas, meeting rooms and many statutes.

The city is located on the peninsula which is formed between Acropolis which is 152 metres above sea level and the small castle which is located in the south of the Acropolis. The stoa area might have been used as a religious area since the beginning of the 5th century BC. Because the city's two acropolises widened on the route of Sivrihisar Hill and Balıklar mountains during the early times of Hekatomnids. The following periods, Caunos started to build on the terraces. Stoa which is on the natural terrain is widened to a narrow area along the harbour.

The location of Caunos was mentioned on the written documents at first during the Persian wars (546 BC) and was determined by British archaeologist Hoskyn in 1842. The first archaeological excavations in the city were performed by a Turkish team managed by Baki Ogün in 1966. After he died in 2001 Cengiz Isık continued to manage the excavations. '…....Harpagos who managed the Ionians attacks the Carians, Caunosus and Lycians ….'(Herodot, 1,171). This passage informs us of the history, geography and politics of Caunos during the Persians war in the 6th century BC. Caunus composed of its committed cities and was the centre of them. Caunos that was established by Anatolian residents were approved by archaeological finds reveal its different names. Kbid was known at the end of the 4th century BC, later it was called as Caunos inthe  6th century BC because of changing its name to be the same as the other Anatolian cities during the Hellenistic colonisation. It was a long and important history during the Christianity period. Starting from the Late Ancient Period to the Middle Ages, this city was under the domination of Eastern Rome and the Lycian Church State. In time it became a village and from the 3rd quarter in the 13th century it was dominated by Ucturkler. And then starting from the beginning of the 15th century it was dominated by the Anatolian beylik of Mentese.