The dance was practiced by the Margis (Zoroastrian refugees escaping the Islamic Conquest of Persia who settled in the Margan, the region which is named after them) originally performed by maidens around fire as a form of worship, later temple prostitutes would later learn the dance, at this point they were called by the Raja of Shanghar (who had given the Zoroastrians refuge in his land), "Agapujari" (i.e. 'fire-worshippers').
The Sindhi Arabs of the Jogh (Karmati) later conquered the Hindu kingdom of Shanghar. The Karmati (who where apart of the extreme Shia Ismaili sect) use to call the dance Raqs Nar (Fire dance), they would often make their Habshi (Ethiopian) slave-girls learn and perform the dance during the Ta'ziya festival.
After the diminishing of the Karmati Empire, Sufi saints encouraged young girls who had been 'possessed by the devil' or 'evil-eye' to perform the Raqs Nar, as a form of Dhikr of saints to ghazals. The dance became a common site in Khanqahs all over the Margan and Jogh. Later on the dance developed further into Sufi mysticism to be performed at Mazars (shrines of Sufi saints) and many Hindu women also began to practice the dance, they called it "Shanti" (from Sanskrit शान्तिः śāntiḥ) which means 'peace', 'rest', 'calmness', 'tranquility', or 'bliss'.
The dance would later come to be performed by the Tawaif (courtesans) in the palaces of the Mughal nobles, who turned the exotic dance form into an art at ceremonies called by the Nawabs of Margan, 'Mehfil-e-Shanti'.
The British later banned the Medieval practice of 'Raqs Shanti,' which caused Mehfils to go underground and secret schools teaching the dance form to be formed. During the Indian Rebellion of 1857 (also known as the Indian Mutiny), Shanti Mehfils provided an opportunity for mutineers to meet and many tawaif were also actively involved in the movement.
Tawaif formed a secret-society of assassins called 'Qatali Fatinat (Killer Temptresses),' who would often plunder and assassinate British officers by seducing them by appearing in erotic attire and performing seductive songs and dance, often murdering them with throwing knives or poison.
As a result, many Kanjris or Shantinis were confiscated by the British after the mutiny, disrupting the traditional tawaif succession. By the early 1900s, many tawaif had moved into the prostitution industry as the traditional system had broken down which led to the exotic art form becoming an erotic dance performed in brothels, however many Shantinis continued to open schools to teach the classical form of the dance.
This led to a schism between the modern erotic form which was performed by prostitutes in brothels called 'Agwa' and the exotic form taught in dance schools called 'Raqs Shanti.'
After the formation of the Margidani music and film industries centred in the city of Jahanghirpur (Jollywood), many Kanjris (prostitute dancers) and Shantinis (artistic dancers) became actresses and singers both vied for influence and supremacy in the industry.
Salma Khan from the Nawazvali line of Agwa Shanti performers (founded by infamous Tawaif of the 19th century, Malika Saira Nawaz a 'Qatali Fatinat', she taught it to her 8 daughters who taught it to prostitutes in Jahanghirpur in exchange for money).