The municipality is located on the southern coast of São Miguel, and nestled between the three larger municipalities of Ponta Delgada (to the west), Ribeira Grande (in the north) and Vila Franca do Campo (on the eastern frontier); its municipal seat is approximately nine kilometers from the principal city on the island (Ponta Delgada). It was created on April 11, 1522 by royal decree from King D. João III, and although the municipal seat was temporarily assigned to Água de Pau, it is currently occupied by the urbanized core of Nossa Senhora do Rosário and Santa Cruz.

Its small territory is relatively rich in biodiversity, influenced by its differentiated environmental characteristics between the Fogo volcano (the Serra de Água de Pau) and the volcanic complex of Picos. Most of this space is occupied by pasturelands, cultivated tracts and, along the coast, an urbanized core. The cryptomeria, acacia and eucalyptus are just some of the variety of trees that populate the forests in the interior, while along the southern flank of Fogo, there are many endemic species of Erica azorica, Calluna vulgaris, the cedro-do-mato (Juniperus oxicedrus) the pau branco (Picconia azorica).