In the 16th century, the construction of a warning marker for risky and shallow waters around the island of Hiiumaa was ordered by the Hanseatic League in order to secure the important trade routes along the Baltic Sea. The structure was built about 40 years after the request and the lighthouse was completed in 1531. Initially, the building was just a stone tower without any rooms and was used as a daymark. For more than 100 years the tower was not lighted and could only be seen during daylight.

The light was introduced in 1649, when outside stairs were added and a fire was ignited every night. The most accessible material for burning was wood but soon nearby forests were exhausted. Live fire was also troublesome since it was often extinguished by storms and needed an entire team of workers to keep it alive.

In 1810, the tower was modernized. An inner stairway and windows were cut in the tower with some adjacent rooms for maintenance. A lantern room was added to the top and three oil lamps now provided the light. The system was replaced in 1860 with a rotating lantern. A new, more technologically advanced lantern was installed in 1901.

The tower was bombed during World War II, but only the lantern and optical systems were damaged. In 1963 the tower was fully automated and an experimental light system with a magnetic rotation mechanism was added.

Through all these changes, the outer view of the tower has remained largely unchanged. The general form is a square prism with heavy buttresses that are arranged by the compass directions. Major outer repairments were done in the 1970s. The building was covered with reinforced concrete and painted yellow. As later turned out the paint actually blocked humidity that was detrimental to the tower, so in 1989-90 some emergent restoration works were needed. It has been better maintained and overpainted many times after that.

The tower itself is 37.7 meters (124 feet) high and it is built on the highest point on the island, making the focal height 103.6 meters (340 feet). Although the building is not close to the sea, its elevated location makes it visible to 26 nautical miles. In 2020 the lights were changed for a new LED system that now makes Kõpu lighthouse one of the most powerful LED light sources in the world. It remains one of the best-known symbols on the Estonian island.