The year 1788 brought to Sydney Cove the first Europeans to settle in Australia, under the command of Governor designate Arthur Phillip. Leaving Botany Bay he sailed past South Head into Port Jackson, camped the night at the future Watsons Bay, and proceeded up the harbour the next day to establish the town of Sydney. South Head and the area of Watsons Bay would then play a major role in the new colony. Here was the home of a Lookout and Signal Station (still operating today) to alert incoming ships to the location of the town and townsmen to the imminent arrival of vessels. Here too was the location of the first lighthouse in Australia. The first settlers returned to Watsons Bay for recreation, as they do today, and convicts escaping the penal colony by boat had to slip past South Head at night. This short illustrated survey of one of the most historically significant places in Australia examines its Aboriginal heritage, its multiple roles in the early colony, and its development for military defence, as a pilot station, and to adapt to the needs of a growing and diverse community.