Under the leadership of Basilio Debuyan, the village slowly took its form. Houses were constructed in rows of newly-built roads. A church and a plaza were likewise constructed. A Catholic Priest from Iloilo City visited once a year. Debuyan became the first Cabeza under Capitan Mayor at Isio, about 52 kilometers north. The happy and prosperous condition of the community was short-lived. The Canman-og River , later changed to Naga River and presently called Sipalay River brought havoc and destruction through flood and inundation. Little by little, the place was swallowed up until the church and the plaza were likewise carried away by the flood. The people decided to transfer the place to a flat land across the river to the north. The selected area was a forestland. It was Debuyan himself who felled down the first Narra tree. The former site is now known as Sipalay Diotay. It stands today, a sentimental reminder of a once happy and prosperous village.

When the Americans arrived in the Philippines , Sipalay was already a full-pledged barrio of the Municipality of Cauayan . The barrio was the biggest and the most progressive district in the whole community. Debuyan became the first Barrio Delegado under the American regime. During the early 1920s, a new feeling surged through the hearts and minds of the people. It was their desire for independence, the urged to separate from the mother town. For this purpose, a society, La Liga del Sur was formed. Prominent leaders of society were: Don Severo Alejano, Mariano Mueda, Sr., Maximino Salveron, Inocencio Debuyan, Sr., Amando Zaragoza, Basilio Debuyan, and Alfonso Custioso. The separation movement was the cry of the southern districts and Sipalay became its chief advocate. Reasons for the movement were: distance of Sipalay from the Poblacion of Cauayan, 54 kilometers; no roads connecting the two places and there seemed to be no efforts on the part of the town officials for the constructions of same; the danger and hardship of the early travel; and the much delayed mails often time, letters, dated a year ago arrived in Sipalay not by mail-carriers but by policemen whose presence were considered quite an event. The cry for the creation of a municipality south of Cauayan was not only imperative but also reasonable.Sipalay got its name from the old native phrase si palay meaning 'there is rice'. Chinese traders, who were not able to pronounce the 'R' in the local word Paray are believed to have helped disseminate the name Sipalay as rice abundantly grows in the area and is freely traded. The original natives of Sipalay were the "tumandoks ", perhaps with Malay or Bornean roots . Immigrants from Panay Island joined them later. These were families who ventured out to the sea to escape the oppressive Spanish feudal system and found a new home in the paradise that is today Sipalay.With unflinching political will, its local officials spearheaded by the Municipal Mayor then, led Sipalay to recovery and caused it to raise high above the economic setbacks and bloody turmoil of a low intensity civil war. Not only were revenue surpluses generated starting 1989, but also for the next eight consecutive years, the surpluses continued to rise. The peace and order situation, as it were, was somehow cajoled to a level allowing people's lives and business to go back to "normal". Amazingly, some investments, particularly in tourism development, flowed in. Formerly a barrio of Cauayan, Sipalay had the distinction of having been used as a garrison for Spanish soldiers guarding the southern corridor of Negros Island. Original immigrants of the place came from the island of Panay, the town being just across a short sea span from what is now Iloilo. When the new settlers arrived, they drove away the natives to the mountains. No roads existed during the time, and trading was easier with Iloilo and Panay through sailboats. When the Americans came development was introduced with the putting up of schools and roads. Literacy among residents was improved. Sipalay became a lookout point when the Japanese occupied the country, with the town being used as an outpost by the guerillas . It was also in Sipalay, in Campomanes or Maricalum Bay, where the first American submarine landed to deliver arms and supplies for the forces commanded by airman-hero Col. Jesus Villamor. The staging of the final fight with the Japanese jumped from this point when sufficient supplies shipped from Australia arrived.