Port Underwood is the southernmost part of the Marlborough Sounds with an entrance to the south from Cloudy Bay. Port Underwood was the location of the earliest European settlement in the South Island, with whaler John Guard establishing a shore whaling station in 1828. In June 1840, the South Island signing of the Treaty of Waitangi occured at Horahora Kakahu Island in Port Underwood.
When Europeans arrived in Marlborough Port Underwood was the first place to be settled as it offered a sheltered port to anchor ships, ample timber, and access to Cloudy Bay. To Māori, it was known as Manganui but gained the European name Port Underwood after Joseph Underwood the owner of a Sydney shipping firm which used the port. There was already a Māori settlement there which had taken advantage of the plentiful food supply, so when Samuel Ironside gave his sermon on Christmas Day 1840 he found it possible to preach to both Maori and Europeans. Port Underwood was deforested early in the colonial period but with the moderate rainfall and year round temperate climate, substantial regeneration has been possible.
The main economic activities are mussel farming and forestry, with substantial Radiata pine plantations in the area, but it is also popular with holiday makers and fishermen.. A largely unsealed road links Rarangi with Picton. There is a small resident population in the area but in the holiday season the number swells with the arrival of the bach owners.
The hills surrounding Port Underwood are formed of schist as in the rest of the Marlborough Sounds giving many of the beaches a gold colouring.