Fatehpur Thakiala was part of the Mendhar subdivision of Poonch before the partition of Kashmir in 1947. Fatehpur Thakiala is bounded by the Line of Control—the boundary between Indian and Pakistan administered Kashmir—on its north and east sides. The 1947–48 war between India and Pakistan divided it into two parts; one part went to Pakistan and the other became part of India. After the separation from Mendhar, it became a tehsil of the Kotli District.
The original name of the area was Thakiala, named after the native Thakial Rajputs. It was renamed Fatehpur Thakiala to honour the late Sardar Fateh Muhammad Khan Karelvi. It is also the birthplace of the former president and prime minister of Azad Kashmir, Sardar Sikandar Hayat Khan.