Background: The Parsis, one of the smallest religious community in the world, reside in South Asia. Previous genetic studies on them, although based on low resolution markers, reported both Iranian and Indian ancestries. To understand the population structure and demographic history of this group in more detail, we analyzed Indian and Pakistani Parsi populations using high-resolution autosomal and uniparental (Y-chromosomal and mitochondrial DNA) markers. Additionally, we also assayed 108 mitochondrial DNA markers among 21 ancient Parsi DNA samples excavated from Sanjan, in present day Gujarat, the place of their original settlement in India. Results: Our extensive analyses indicated that among present-day populations, the Parsis are genetically closest to Middle Eastern (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. Conclusions: We show that the Parsis are genetically closest to the Neolithic Iranians, followed by present-day Middle Eastern populations rather than those in South Asia and provide evidence of sex-specific admixture from South Asians to the Parsis. 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 subcontinent population and cultural milieu like sugar in milk. Moreover, in a wider context, our results suggest a major demographic transition in West Asia due to Islamic-conquest.