The earliest settlers arrived in the Loyalton area in the late 1850s, where they stopped in the lush valley on their way to the Sacramento Valley. Founded in the 1850s as Smithneck, the community had raised a great amount of money for the Union cause during the Civil War so the name was changed to reflect union sympathies to Loyal (town). With the construction of the transcontinental railroad, mail came in greater amounts, so in 1867 a postoffice opened.
Farming and dairy were the primary business, producing renowned cheese products. In the 1880s timber became more important with five lumber mills in Loyalton, and several more in the vicinity.
With the completion of the Boca & Loyalton Railroad in 1901, the town incorporated to support the lumber industry. Along with incorporation came the ability to outlaw certain activities seen as detrimental to the industry work force such as alcohol consumption. For that reason, city limits were pushed deep into the surrounding forests, making Loyalton one of the largest cities in area in California (some 50 square miles) until the lines were finally redrawn in the 1930s to the modest one or less square mile city limits of today, and the largely ignored liquor restrictions were lifted.
With the decline of gold mines, in 1915 the lumber industry experienced a slump and all of the mills closed except Robert's which moved across the valley. In 1917 Clover Valley Lumber opened at the former Robert's site. The mill operated under different ownerships until eventually becoming Sierra Pacific Industries. Lumbering has always been an important aspect of the local economy and culture. From logging camps and logging trains to timber transport by trucks, the lumber industry witnessed many dramatic changes in timber production. By the 1990s much of the lumber operation was automated, and a Cogen power plant was added.
Following WW II, the dairy industry was replaced by beef cattle on the surrounding ranches. The last two dairies ceased operations in the 1950s.
Founded as a farming community and its economy boosted by a century of lumbering, it has survived as the largest and only incorporated City within Sierra County.
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