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Sag Harbor was settled sometime between 1707 and 1730. While some accounts say it was named for neighboring Sagaponack, New York which at the time was called "Sagg", Sagaponack and Sag Harbor both got their name from a tuber the Metoac Algonquins raised. One of the first crops that was sent back to England, the tuber-producing vine is now called the Apios americana. The Metoac called it sagabon. That is how the harbor and neighboring town got its name. Such namings were not unusual.

The port supplanted the East Hampton community of Northwest which is about five miles east of Sag Harbor. International ships and the whaling industry had started in Northwest but its port was too shallow. The most valuable whale product was whale oil which was used in lamps; thus it could be said that Sag Harbor was a major oil port.

Sag Harbor is an incorporated village in Suffolk County, New York, with parts in both the Towns of East Hampton and Southampton. The population was 2,313 at the 2000 census. The entire business district of the whaling port and writer's colony is listed as Sag Harbor Village District on the National Register of Historic Places.