Before the Roman period, it may have been the site of an Etruscan village, or at least that’s what the Romans thought. The Romans also thought it was home to a shrine to a god named Vaticanus, who was supposed to be the patron of seers (vates in Latin) or perhaps infants learning to speak (“va” being a basic thing infants can say - pronounced “wah” in Latin of course).

In Roman times it was a neighbourhood outside the walls of the city and was considered to be sort of a slum. There were also gardens and vineyards there. There was a chariot track too, which was turned into a proper circus in the 1st century, built around the Vatican Obelisk, which is still there in St. Peter’s Square (although it’s not in its original spot anymore). It was actually begun by Caligula, but came to be called the Circus of Nero. Nero’s circus was then used for Christian persecutions in the 60s, where the traditional story is that Peter was crucified there upside down.

The circus itself fell out of use and the site was a cemetery, apparently for both Christian and pagan burials (the current Vatican Necropolis, under the basilica). Christians believed Peter was also buried there, so in the 4th century Constantine built the original St. Peter’s Basilica on the site. The ruins of the circus were built into the basilica, although they were destroyed along with the rest of the old basilica when the new one was built in the 16th century.

Sources:

Lawrence Richardson, A New Topographical Dictionary of Ancient Rome (Johns Hopkins University Press, 1992) - particularly pg. 83 (for the Circus of Nero) and 405 (for the various uses of the word "Vaticanus")

Rosamond McKitterick, John Osborne, Carol M. Richardson, Joanna Story, eds., Old St. Peter’s, Rome (Cambridge University Press, 2013) - especially the introduction, which goes over the history of the site