Pedro Domecq began producing Kahlua in 1936. It was named Kahlua, meaning "House of the Acolhua people" in the Veracruz Nahuatl language spoken before the Spanish Conquest. Kahlua was Hispanicized as Ulúa, forming the name of the modern San Juan de Ulua fortress.
The company merged in 1994 with Allied Lyons to become Allied Domecq. In turn, that company was partially acquired in 2005 by Pernod Ricard, the largest spirits distributor in the world since its merger with the Swedish Vin & Sprit in March 2008.
Since 2004, the alcohol content of Kahlua is 20.0%; earlier versions had 26.5%. In 2002, a more expensive, high-end product called "Kahlua Especial" became available in the United States, Canada and Australia after previously being offered only in duty-free markets. Made with premium Arabica coffee beans grown in Veracruz, Mexico, Kahlua Especial has an alcohol content of 36%, has a lower viscosity, and is less sweet than the regular version.