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Background: The Parsis are one of the smallest religious communities in the world. To understand the population structure and demographic history of this group in detail, we analyzed Indian and Pakistani Parsi populations using high-resolution genetic variation data on autosomal and uniparental loci (Y-chromosomal and mitochondrial DNA). Additionally, we also assayed mitochondrial DNA polymorphisms among ancient Parsi DNA samples excavated from Sanjan, in present day Gujarat, the place of their original settlement in India., Results: Among present-day populations, the Parsis are genetically closest to Iranian and the Caucasus populations rather than their South Asian neighbors. They also share the highest number of haplotypes with present-day Iranians and we estimate that the admixture of the Parsis with Indian populations occurred ~1,200 years ago. Enriched homozygosity in the Parsi reflects their recent isolation and inbreeding. We also observed 48% South-Asian-specific mitochondrial lineages among the ancient samples, which might have resulted from the assimilation of local females during the initial settlement. Finally, we show that Parsis are genetically closer to Neolithic Iranians than to modern Iranians, who have witnessed a more recent wave of admixture from the Near East., Conclusions: Our results are consistent with the historically-recorded migration of the Parsi populations to South Asia in the 7th century and in agreement with their assimilation into the Indian sub-continent's population and cultural milieu "like sugar in milk". Moreover, in a wider context our results support a major demographic transition in West Asia due to the Islamic conquest.