Zahedan lies east of the Loot Desert. The city was part of the historic region of Sistan, situated today on the borders of southeastern Iran and southwestern Afghanistan. One portion is part of the Iranian province of Sistan and Baluchestan. The other portion is part of the Nimruz Province of Afghanistan.

The name Sistan comes from 'Sakastan', of which Sistan was once the westernmost part. The Saffarids, one of the early Iranian dynasties of the Islamic era, were originally rulers of Sistan.

In the Shahnameh, Sistan is also referred to as Zabulistan, after Zabol, a city in the region. In Ferdowsi's epic, Zabulistan is in turn described to be the homeland of the mythological hero-king Rostam.

Zahedan and the area of Sistan has a very strong connection with Zoroastrianism and during Sassanid times Lake Hamun was one of two pilgrimage sites for followers of that religion. In Zoroastrian religion, the lake is the keeper of Zoroaster's seed and just before the final renovation of the world, three maidens will enter the lake, each then giving birth to the saoshyants who will be the saviours of mankind at the final renovation of the world. The most famous archaeological site in Sistan is on Kuh-e Khwajeh, a hill rising up as an island in the middle of Lake Hamun.

Zahedan is a centre for Sunnism in Baluchistan. The Makki mosque and its madrasa play an important role in Baluchistan's society. Shaikh Abdolhamid Ismaeelzahi is the main and most influential religious and Sunni community leader in Iran that is heading Makki mosque and its institutions. Zahedan also has a Friday mosque for Shi'ite and a Jame mosque, where many members of the community gather to worship on Fridays. A colorful bazaar, Rasouli Bazaar, can also be found in the city, where Baluchi and Pashtun traders intermingle. About 100 km (62 mi) south of Zahedan is an intermittently active volcano, Taftan, which rises abruptly 4,042 m from the surrounding plain.