The town owes its origin to a sixth-century monastic settlement founded by Saint Molua, or Lua, on an island in the Shannon 1 km downstream from the present Killaloe Bridge which later moved onto the mainland.

2 km north of the town, his fort, Beal Boruma, stood on the site of an Iron Age ring at the head of Lough Derg, where a ford crossed the river.

St Flannan's Cathedral (Church of Ireland) was built between 1185 and 1225, with an oratory for the same saint, who had been the abbot of Killaloe in the seventh century.

In 1650, Cromwell spent 10 days on the opposite side of the Shannon at Ballina, exploring ways to cross the river, which was the defensive line of Catholic and Royalist forces before the Siege of Limerick.

In the nineteenth century the Shannon Steam Navigation Company had its headquarters here and constructed a canal to bypass the rapids below the town.

St. Lua's oratory, built between 1000 and 1150, was moved from Friar's island to the site of the Catholic Church when the hydroelectric scheme at Ardnacrusha was constructed in the 1920s.

American president Ronald Reagan's history has been traced back to Killaloe, to Brian Boru's father, Cennétig mac Lorcáin.

Phineas returns to Killaloe for extended periods to spend time with his parents and with his five sisters and their friend, Miss Mary Flood Jones, who later becomes his first wife.