Ferdinand Magellan set out from Spain in 1519 on the first voyage to circumnavigate the globe with five ships and a complement of 264 crew. Three years later in 1522, only the one ship, the Victoria, returned to Spain with 18 men.

The Philippines were the death of Magellan. The expedition sighted the island of Samar on March 16, 1521. Magellan was welcomed by two Rajas, Kolambu and Siagu. He named the islands the Archipelago of San Lazaro, erected a cross and claimed the lands for Spain. The friendly Rajas took Magellan to Cebu to meet Raja Humabon. Humabon and 800 Cebuanos were baptized as Christians. Magellan agreed to help Raja Humabon put down Lapu-Lapu, a rebellious datu on the nearby island of Mactan. In a battle between Spanish soldiers and Lapu-Lapu's warriors, Magellan was killed on April 27, 1521.

Disputes over women caused relations between Raja Humabon and the remaining Spaniards to deteriorate. The Cebuanos killed 27 Spaniards in a skirmish and the Spaniards, deciding to resume their explorations, departed Cebu.

For all its losses, the voyage was a huge financial success. The Victoria's 26 ton cargo of cloves sold for 41,000 ducats. This returned the 20,000 ducats the venture had cost plus a 105 percent profit. Four more expeditions followed between 1525 and 1542. The commander of the fourth expedition, Ruy Lopez de Villalobos, named the islands after Philip, heir to the Spanish throne (r. Philip II 1556-1598).

The Spanish did not develop the trade potential of the Philippine's agricultural or mineral resources. The colony was administered from Mexico and its commerce centered on the galleon trade between Canton and Acapulco in which Manila functioned secondarily as an entrepot. Smaller Chinese junks brought silk and porcelain from Canton to Manila where the cargoes were re-loaded on galleons bound for Acapulco and the Spanish colonies in the Americas. The Chinese goods were paid for in Mexican silver.

While the missionaries spread through the colony to found their parishes and estates in the barangays, the officials of the civil administration preferred to stay in Manila and govern indirectly through the traditional barangay datu or village chief. Although the traditional kinship organization of the barangay had maintained the communal use of land, the Spanish governors brought with them their feudal notions of land tenure with "encomienderos" and subordinate vassals. The traditional village chiefs became a class of landed nobility wielding considerable local authority. The creation of a priviledged landed-holding elite on whom most of the rural population was dependent as landless tenants introduced a class division in Philippine society that has been the perennial source of social discontent and political strife ever since.

The Spanish hold on the Philippines first began to weaken in 1762 when the British briefly captured Manila during the Seven Years' War. In support of the British invasion, the long persecuted Chinese merchant community rose in revolt against the Spanish authority. The Treaty of Paris returned Manila to Spain at the end of the War but with increasing diversion of the China trade to Britain and, even more importantly, with an irretrievable loss of prestige and respect in the eyes of its Filipino subjects.

Spain had governed the colony for two hundred years in almost complete isolation from the outside world. The royal monopolies prohibited foreign ships from trading in the Philippines. After the Seven Years' War, in collusion with local merchants and officials, foreign ships and merchants could ever more easily circumvent the monopolies and enter the Philippine trade.