In 1930s, Tawau prospered rapidly due largely to its agricultural potential. The inhabitant population rose to 1800 in 1931. Two large plantations, the Kuhara Estate of rubber and manila hemp and Kubota Estate of coconut. The first world war (1914-1918) did not directly affect Tawau, which had, however, its share of the world slump. Sandakan was the permanent seat of Government and centre of commerce; Tawau was small but a prosperous town.
By the end of 1930s, there were about 60 shop houses, all timber-built, lining the two main streets of Tawau, Dunlop Street (named after A.R. Dunlop who was a district officer) and Man Cheong Street (now part of Dunlop Street). Man Cheong was a popular coffee shop. It still operates at Dunlop Street. Dunlop Street was so close to the shore that the shops on one side backed out over the high water mark. Most shops were owned by Chinese and sold the foodstuffs and equipment needed in households and on smallholdings. There were some coffee shops and lodging houses. There was no notable restaurant or chemist's shop.
Tawau's centre was the field, with the sea on one side and whitewashed timber buildings on the other three - the District Office, police quarters, the government rest house, none more than two storey high. A tower (which still stands at the Town Padang) was erected by the Japanese after World War I and hours are rung at intervals by the police guard. The scene was tranquil and beautiful. Traffic was scarce - a handful of private cars, lorries and vehicles belonging to the estates. From the padang, Dunlop Street turned into Apas Road, which was metalled roads, which branched off to Kuhara rubber estate and Sin On. There was no ingress from further afield on the landward side. It was a very inhibited area and small and well defined. Its people knew intuitively that they had to live and work together. Despite the many races, ethnic groups and religions, the town was very peaceful. There was no serious crime; doors and windows of dwelling houses were normally left unlocked.
There were neither electricity supply nor main drainage. The water supply to the town was by means of tubs set on trolleys which ran along the narrow gauge trolley line from Tawau River. The tubs were hauled by hand. A telephone line linked the District Office with the District Officer's house, the light house and Kuhara estate. The Government's wireless station communicated daily with Sandakan, whence messages were transmitted to Hong Kong and Singapore. There was no bank, but money could be remitted through the post office, and the Treasury accepted and repaid deposits on behalf of the state Bank.
There were 300 Japanese working on the estates and 100 on Si-Amil Island. They owned the biggest estates (Kuhara Estate) (and a golf course). There was an estate hospital and representative office of a Japanese Bank set up for the benefit of the Japanese inhabitants. Their commercial fishing (mainly tuna) was unique. Their company, Borneo Fishing Company, whose office and factory was situated at Si-Amil Island (east of Mabul and Sipadan Islands). Apparently, all workers there were Japanese. Japanese men crewed the fishing boats, while canning factory was worked mainly by Japanese women. The workers and suppliers arrived in Tawau in Japanese ships, and all were disembarked into launches and lighters and taken direct to Si-Amil. Despite their commercial activities, they left no impact on Tawau in terms of local affairs, social or cultural life.
The S.S. Kinabalu of the Sabah Steamship Company linked Tawau with Sandakan, Lahad Datu, Semporna and Tungku (yes, Sabah Steamship, the name 'Sabah' then was already in use and the company was a subsidiary of Chartered Company). The ship was wrecked off Semporna and later replaced by S.S. Baynain by the Bakau Company (also a subsidiary of the Chartered Company). The government cruiser, "Petrel", was based in Tawau. But it was often used on duty elsewhere. Apart from that, there very few sailing crafts. There was no airfield in Tawau (or anywhere in Sabah). There was a small public hospital close to the shore but it had no medical officer. A medical doctor by the name of Ernst Sternfeld was sent from Sandakan to station in Tawau in 1939-1940, but lasted only a few months.
The Chinese community maintained schools. The Roman Catholic Church was later established in 1922 and provided the only English primary school. Mosques were unostentatious. The District Office was headed by expatriate district officer and assisted by a chief clerk and court interpreter, Mr. Lim Ong Tun. In the community, a highly respected figure was OKK Abu Bakar. The Chinese "Kapitan" was Mr. Stephen Tann (who was later killed by Japanese invaders in 1944 shortly before the end of WWII).
A letter from Tawau to Sandakan could take more than 9 days to arrive and nineteen days are needed to reach Singapore. Since it took many days for the locals to receive mails and newspapers, they tended to rely on radio to keep themselves informed of world news - for the wars in Europe, China etc. Even then, few people could afford a radio set. The best station, apparently, was Manila Station.
In January 1942, North Borneo was invaded by Japanese naval and military forces. As the Japanese forces advanced around the coast of Borneo, from the old field of Kuching, then to Jesselton - Tawau carried on normally. On 19 Jan 1942, the Sandakan wireless station went off the air. On 24 Jan 1942, the Japanese launches were sighted from Batu Tinagat. The District Officer (Cole Adam) and his Assistant met the invaders at the wharf and was arrested immediately. Mr. Cole Adam, after forty-four months in Japanese prison camps, died in September 1945 on the very day of release by the Allied forces.
For 3 1/2 years Tawau and the rest of the country remained under the Japanese occupation until final liberation by units of North Australian Division, who landed in Labuan on 10 June 1945. The British Military Administration of North Borneofound the Colony in a state of appalling devastation. Like all other major towns in the Colony, Tawau was destroyed or damaged by bombing and fire.
During the Japanese occupation, many of the inhabitants were massacred, among them, large number of government servants. The British Military Administration continued until 15 July 1946, when Borneo became a Crown Colony and civil government was resumed. A lot of pre-war records has been destroyed. The emphasis in the immediate post war period had been concerned with rehabilitation and reconstruction. A reconstruction and development plan for the years 1945-1955 was adopted in 1948 for the Colony. There had been many programmes in the field of social services. The Tawau Town Board was constituted in 1955 with control over its own finances and local authorities.