It began scheduled services on September 9, 1980, between Honolulu (HNL) and Princeville, Kauai (HPV) using two de Havilland Canada DHC-6 Twin Otter STOL capable turboprop aircraft.

In 1995, newly renamed Island Air was granted certification by the Federal Aviation Administration to operate larger aircraft to serve the burgeoning commuter market in Hawaii.

[8] In 2012, as the Dash 8 fleet began to approach their useful cycle life, the airline reached out to PenAir of Alaska and wet leased a single Saab 340 turboprop aircraft for 10 months.

[13] On January 18, 2013, Oracle Corporation CEO Larry Ellison, who had recently acquired most of the island of Lanai from David H. Murdock, was reported to be the buyer, though this was not confirmed by the airline at the time.

[20] Prior to Silver, Pflieger led the highly successful turnaround at Fiji Airways and was a former Virgin America and Delta Air Lines senior executive.

[21] In December, 2014, the airline announced that due to six quarters of prior losses under previous management, it was delaying delivery of new Bombardier Q400 propjet aircraft and also undertaking a comprehensive re-assessment of its fleet, network, and other aspects of its business.

[22] On April 29, 2015, Island Air announced it would be eliminating Honolulu service to Kauai beginning June 1 and reducing daily frequency by more than half on its Lanai route starting on that date.

[25] On February 8, 2016, following the formal approval of the transfer in ownership by the U.S. Department of Transportation, it was announced that Dave Pflieger, who joined as CEO in October 2014 and presided over its successful restructuring, turnaround, and sale, would be leaving Island Air to work directly for Ellison in an unspecified role and turning the reins back over to Les Murashige, a former Island Air executive, who would become president and CEO under the airline's new owners, PacifiCap LLC.

[26] On January 21, 2016, Island Air announced plans to restore service to Kauai beginning on March 15 after suspending flights in June 2015 due to restructuring.

The airline stated that approximately 32 airport-related jobs would be created and hinted that expansion aren't done yet with hopes to re-enter other destinations that Island Air previously served.

[28] On April 14, 2016, Island Air announced its plans to restart service between Honolulu and Kona starting June 14 with five daily round-trip flights.

On its last days of operations, Island Air served the following destinations:[8] The airline took delivery of a Bombardier Q400 (N539DS) propjet in March 2006 via a five-year lease.

[35] After acquiring the ATR 72 aircraft, Island Air found them to be unreliable to the point that the airline was reviewing potential replacements as of September 2013[update].

[36] On March 31, 2014, Island Air placed firm orders for two Bombardier Dash 8 Q400 regional turboprop aircraft with the intention of replacing the ATR 72 with Q400.

On October 28, 1989, a de Havilland Canada DHC-6 Twin Otter operating as Aloha Island Air Flight 1712 crashed into a mountainous terrain killing 20 people.