Utila is the smallest of the Honduras Bay Islands, after Roatán and Guanaja, in a region that marks the south end of the Mesoamerican Barrier Reef System, the second-largest in the world. The eastern end of the island is capped by a thin veneer of basaltic volcanic rocks, erupted from several pyroclastic cones including 74 m (243 ft) Pumpkin Hill which forms the highest point on the island. It has been documented in history since Columbus' fourth voyage, and currently enjoys growing tourism with emphasis on recreational diving and is known as one of the world's best dive locations.

Recently the Organization of the United Nations (UN) declared the island of Utila as the best place in the world to dive. With favourable diving conditions, the island increasingly attracts general tourists, along with more traditional international backpacker visitors. More than eighty diving sites are located around the island among its extensive reefs teeming with marine life, including the elusive whale shark.

Utila is also the home of the annual festival Sunjam, the largest electronic music event in Honduras, and one of the largest and most important in Central America. The date is fixed to the first Saturday of August every year. The event attracts world class international DJs as headliners and invites the best regional talent to perform.

Archeological, historical and ethnographic evidence of the Bay Islands indicates that they were inhabited well before the Europeans arrived, as long ago as 600AD by a pre-Columbian culture known as the Paya. The Paya may have entered Central America in the great North to South America migration in 5,000 BC, although to the contrary, linguistic studies indicate that the Paya may have been descendants of South American tribes.