The first settlement on the site was a village named Bennet (spelling varies depending on the source), but it came to be known as Loxley around 1900, when Michigan native John Loxley established a lumber camp among the virgin pine forests of southern Alabama. The camp included a sawmill and a small-gauge railroad to haul the timber. Many of the workers who were drawn to the camp remained as citizens of the town. When the lumber in the area was depleted, Loxley and his family left, possibly moving to Louisiana. In 1906, the Louisville and Nashville Railroad ran a line through Loxley, originally to end at Fort Morgan, but it was never finished.

They first schoolhouse in Loxley was built in 1908, followed by a three-room building in 1911. High school-age students in Loxley had to travel by train to Bay Minette for their education in the Loxley Public Library early part of the century. The train came to be known as the Pine Knot Special because it would stop every few miles and passengers would disembark to gather pine knots to fire the engine. The abundantly available wood along the line was the product of a 1906 hurricane that blew down many of the nearby pine groves. The Louisville and Nashville Railroad switched to wood-burning engines to take advantage of the free fuel.

The only church in town was the Methodist Church, the Baptist Church having blown down in the 1916 hurricane. Everyone went to the Methodist Church. The Episcopal Church was considered “out in the woods” as it was located northwest of town.

The present post office was officially opened in 1906 by Octavia Sauer. She was the official postmistress and depot agent combined. The grammar school was built in 1925.

By 1920, a number of businesses had been established in Loxley. They included an egg store, grocery store, two general merchandise stores, a train depot, drug store, telegraph office, land office, repair garage, post office, bank, hotel, butcher shop, orange packing shed, cement block plant, a blacksmith, a feed and lumber store. The main road was Highway 90; it was not paved then. Walter “Pop” Hammond had a grocery in the George Marinos building. During WWII, Loxley was home one of several prisoner of war (POW) camps housing German and sometimes Italian soldiers. Prisoners in Loxley were used for labor in nearby sawmills. Loxley was incorporated in 1957. In 1965, a fire destroyed the old train depot and surrounding storage sheds, marking an end to the railroad era in Loxley.