The station opened on 20 July 1925 and closed to passengers on 14 February 1966 and goods on 2 January 1967.

In June 2009 the Association of Train Operating Companies published a report (Connecting Communities: Expanding Access to the Rail Network) strongly indicating that the reopening of Hythe railway station would be viable, in that the ratio of business, economic and social benefits to costs would be as high as 4.8.

In January 2014, Hampshire County Council shelved the plans due to the business case "offering poor value for money".

[4] Following the withdrawal of the oil trains from Fawley [5] in August 2016, Waterside Community Railway group held a supporters meeting at Hythe Community Centre on 17 October 2016·to discuss current plans to re-open the branch line for passenger services.

[7] A series of public consultations will be held between Monday 8 August and Friday 9 September 2022 to hear views on reintroducing passenger services to the Waterside Line.