The hotel was built by Thomas Willson about 1854. The first licensee was Thomas Sclanders in 1854. The second was Reuben James Hibbart, who was licensee from 1855 to 1864, when it was taken over by Samuel Lewis.

Like the Normanville Hotel, the Yankalilla Hotel was often used for public meetings, as in the early years there were no buildings suitable for large gatherings. Meetings to discuss the building of Christ Church were held there in the early 1850s, as were meetings to discuss the foundation of an Institute in 1859. The land around the hotel was also used for various functions, such as Christ Church Sunday School picnics, and the sale of stock and land.

When Thomas Willson moved to Kangaroo Island he kept ownership of the hotel and a number of other properties and used an agent to manage them. Willson died in 1901 and the hotel and surrounding land was sold to H.R. Raye for £1,800.