Pai is located on Thai highway 1095, which connects Chiang Mai with Mae Hong Son in northern Thailand. It is a small, rural mountain town with an interesting mix of local Thai, Thai and foreign tourists, and long-term expatriate foreigners.

As Pai lies at the foot of the mountains, many tourists use it as a base for trekking and visiting hill tribes like Karen, Hmong, Lisu and Lahu. Another notable attraction is the town's excellent Wednesday market which brings large and colorful crowds of local villagers and tribal people from all around the Pai Valley.

The area of modern-day Pai has been inhabited for more than 5,000 years. About 2,000 years ago, the Lua (or Lawa) Tribe was the dominant ethnic group all over the area of today's northern Thailand, and a few of their descendants still live in villages only about 20km away from Pai.

Pai's recent history is one of waves of migration: in addition to the aforementioned waves of old Shan and Lanna immigrants, Karen immigrants arrived in the 18th century, Lisu and Lahu people from areas of southern China arrived in the early 20th century, Muslim families from Chiang Mai began arriving to establish trade businesses starting around 1950, a group of Kuomintang fleeing Mao Zedong established a community in Pai in the early 1960s, and finally a new wave of refugees from the Shan State of Burma have arrived in the last few decades, fleeing the turmoil caused by the Burmese Junta to work as laborers in Thailand.