It was developed by Grover Loening from the C-1 that he had created together with Leroy Grumman, incorporating a new fuselage design.

This departed from the characteristic Loening design feature of having a slender, "shoehorn" float projecting from the underside of the fuselage with an engine mounted tractor-fashion above it.

The engine was mounted in a separate nacelle on the leading edge of the upper wing.

In 1931, Keystone-Loening built two examples of a revised version, but no further production ensued.

Thompson Aeronautical Corporation (TAC), a U.S.-based air carrier, was operating scheduled passenger service between Detroit and Cleveland in 1930 with Keystone–Loening Air Yacht aircraft with six round trip flights a day between the two cities.