The British Indian Ocean Territory flag flies over Chagos Archipelago

The most high profile aspect of Chagos Island politics relates to the continued uncertainty as to the future of the former inhabitants of the islands who were evicted in the 1960s and 1970s as part of an arrangement between the United Kingdom and the United States to establish a military establishment on the island of Diego Garcia. The islanders' plight has been well documented, including a documentary produced by investigative journalist John Pilger, entitled "Stealing a Nation", which won the British Royal Television Society Best Documentary Award in 2004.

In 2000, the English High Court ruled that a local Ordinance made by the Commissioner of the British Indian Ocean Territory exiling the islanders was unlawful, a decision which was accepted by the British Foreign Secretary, Robin Cook. Subsequent efforts by the Chagossians to obtain further compensation payments were dismissed by the High Court and Court of Appeal, who held that the compensation paid had been fair and lawful. Following the conclusion of the compensation cases, the British Government attempted to achieve the same objective through use of Orders in Council enacted under the royal prerogative, which is the only means short of an Act of Parliament by which legislation can be enacted for the Territory. These Orders in Council were found in part to be unlawful by the High Court. The UK government appealed the ruling, but on 23 May 2007 the Court of Appeal dismissed the appeal saying that the methods used to stop the Chagos families to return to the islands were "unlawful" and "an abuse of power". The Government has been granted leave to appeal to the House of Lords on the condition that they undertook to pay the costs of the respondents. On October 22 2008 the UK Law Lords upheld the UK Government's bid to stop Chagossians from returning to their homeland. The Chagossians may now take their legal battle to the European Court of Human Rights.

Despite the Law Lords ruling, the long term future of the archipelago still appears uncertain. In the medium term the US-UK joint use of Diego Garcia for defence purposes is by treaty currently set to expire in 2016, although both Governments have the option of extending the lease for another 20 years if considered necessary.

Beyond this date, it appears from statements made by Mauritius to the United Nations Human Rights Committee that the United Kingdom has undertaken to cede the islands to Mauritius once they are no longer required for defence purposes. This could potentially result in a conflict between this commitment and potential claims of a right to self-determination by some of the Chagossians.