Sayla was a 575 sq km princely state ruled by the Jhala Rajputs, a clan that came to Saurashtra from Sindh and established their reign at Patdi in the 12th century. After the Islamic invasions, the Jhalas moved their capital to Halwad and made it their capital. Over the centuries, the Jhalas established Dhrangadhra near Halwad, Wankaner, Limbdi, Wadhwan, Sayla, Chuda and other princely states.

The state of Sayla was founded in 1751 by Seshmalji, who is said to have fought many battles and to have captured Sayla from the Kathi Darbars and made it the capital of his state. He is credited with building the fortified wall around Sayla and founding the Darbargadh or Rajmahal (palace), which is still the residence of the Jhala family. The palace has halls for audiences, administrative and judicial meetings of the rulers, life-size portraits of successive rulers and attractive carvings.

Among the progressive rulers of Sayla was Thakur Saheb Vakhat Sinhji who set up rural industries and a thermal power house in the 19th century to modernize the area.