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The island was long inhabited by indigenous peoples, related to those who lived north of Long Island Sound. At the time of European encounter, it was occupied by the Manhanset tribe, an Algonquian-speaking people related to the Pequot and other Algonquians of New England. The original name of the island, used by the Manhanset Indians, is Manhansack-aha-quash-awamock, which literally translates to “Island sheltered by islands.”

Shelter Island was included in the original Plymouth Company land grant made by James I of England in 1620. On April 22, 1636, Charles I of England, told that the colony had not made any settlements yet on Long Island, gave the island to William Alexander, 1st Earl of Stirling. The grant gave Alexander all of Long Island and adjacent islands. Alexander gave James Farret power to act as his agent and attorney in colonizing Long Island. In reward Farret was allowed to choose 12,000 acres (49 km²) for his personal use. Farret chose Shelter Island and Robin’s Island for his use. Farret in turn sold the islands to Stephen Goodyear, one of the founders of the New Haven Colony.

In 1651 Goodyear sold the island to a group of Barbados sugar merchants for 1,600 pounds of sugar. Nathaniel Sylvester (1610-1680), one of the merchants, was the island’s first white settler. He was among a number of English merchants who had lived and worked in Rotterdam (where he was born) before going to Barbados. His connections there and with the Netherlands helped him establish a far-flung trading enterprise. On March 23, 1652, he made the purchase official by agreement with Youghco (called Poggatticut), the sachem of the Manhanset tribe. The other owners, Sylvester’s brother Constant, and Thomas Middleton, never came to Long Island. In 1673 Nathaniel Sylvester claimed ownership of Shelter Island, Fishers Island, and other parts of Long Island. By that time the Manhansett had declined in number and power.