Staffed by African American enlisted men who were placed under the command of white officers, the regiment was formed and trained at Camp William Penn near Philadelphia, Pennsylvania between August 23 and September 10, 1864.

After the war, the regiment undertook occupation duties as part of the 25th Corps in Texas along the Mexican frontier and the Rio Grande River before its personnel were mustered out in September and October 1865.

According to historian Samuel P. Bates, during this period of service, this regiment sustained only a single casualty, and that occurred during Union Army actions associated with the Second Battle of Deep Bottom, Virginia and the Siege of Petersburg.

Other historians have noted, however, that these actions occurred later in the siege, and were related to the Battle of Chaffin's Farm (September 29–30), Battle of Fair Oaks and Darbytown Road (October 13 and October 27–28), trench duties outside of Richmond (until March 1865), operations near Hatcher's Run (March 29–31), and the Appomattox Campaign and Confederate States Army's surrender by Robert E. Lee (April 1865).

Colored Infantry was one of the Union regiments which "made the journey all the way to Appomattox Court House with Major General Edward Ord's Union Army of the James and arrived in time to be involved in the final fighting.... On the morning of the 9th at Appomattox Court House, the black units were sent forward to support other Federal units in the closing phase of the battle...."[5] Afterward, the 127th was assigned to post-war duties at City Point.