The bay first came to the attention of Europeans in 1610, when Henry Hudson entered it during his exploration of the larger bay that bears his name. James Bay itself received its name in honor of Thomas James, an English captain who explored the area more thoroughly in 1631.
James Bay is important in the history of Canada as one of the most hospitable parts of the Hudson's Bay region, and as a result its corresponding importance to the Hudson's Bay Company and British expansion into Canada. The fur-trapping duo of explorers Pierre-Esprit Radisson and Médard Chouart, Sieur des Groseilliers founded the first fur trading port on James Bay, Rupert House, and their success was such that the Company was charted by Charles II on their return. Significant fur trapping continued in the region as late as the 1940s, but in general James Bay dropped continuously in significance almost from the founding of the Company. It was, nevertheless, the gateway to British settlements in what would become Manitoba (Winnipeg, for example) and as far west as the Rocky Mountains.
James Bay has shot back into prominence in recent decades due to the James Bay Project. Quebec generates a great deal of hydroelectricity, and since 1971 the government of that province has been developing rivers in the James Bay watershed, notably the La Grande River.
The people who predated Henry Hudson's sighting of the bay, the Cree objected strenuously on the grounds that it disrupted their way of life, and in conjuction with environmentalists (the bay is a haven for migratory birds) have worked to curtail or end the project. The Cree signed an agreement with the Quebec government in 1975, which was the first modern land claims settlement in Canadian history, but this did little to end the controversy.
A major victory for the anti-development point of view was the 1992 refusal by the New York State Power Authority (a major purchaser of Quebec-generated power) to sign a contract for electricity generated by Quebec. This left further development at James Bay problematic, as Quebec's power generation utility Hydro Quebec was now left with a surplus. "James Bay 2", the second of three planned development phases, has been in limbo since. Still, even the curtailed project produces over 15,000 megawatts of energy, more than three times the production at Niagara Falls.
Another major development project, the Great Recycling and Northern Development (GRAND) Canal has been proposed. Suggested in several forms over the decades, the current idea is to separate Southern James Bay from Hudson Bay by a large dike, thus turning the bay into a freshwater lake due to the numerous rivers that empty into it. This water could then be pumped south for human use, and Hudson Bay (which is of remarkably low salinity due to poor connectivity with the Arctic Ocean) would freeze less often and support a greater variety of saltwater organisms -- possibly producing new opportunities for fishery. In the wake of the opposition to the James Bay Project, however, it currently seems unlikely that the GRAND Canal will ever be built.
