Located along the valley that separates the Caldeira massif from the rest of the island of Graciosa, the village of Luz only became populated late in its history. Its rocky soil seemed unsuitable for agriculture. But the relative poverty of the soil was partly offset by the development of fishing, as Luz benefits from a southerly orientation and a relatively sheltered coastline. As a result, the small port of Folga quickly established itself as one of the island's main fishing centers. It was also from here that the barrels of Graciosa wine produced in this sunny part of the island were shipped. The village is home to a pretty Baroque church, Nossa Senhora da Luz, built in 1738 on the site of a 16th-century hermitage.

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