The town was founded during the late 19th century as a resort development by the officers of the Pensacola and Atlantic Railroad, a subsidiary of the Louisville and Nashville Railroad. The P&A was organized to connect the terminus of the L&N at Pensacola to the western terminus of a predecessor of the Seaboard Air Line Railroad at River Junction—now Chattahoochee—in the 1880s. The town was named after Frederick R. De Funiak, a vice-president of the L&N. Like much of Northwest Florida, DeFuniak Springs was settled mainly by Scots from Virginia and the Carolinas.