Port Ellen Distillery was founded by Alexander Ker Mackay, with the support of the proprietor of Islay, Walter Campbell, shortly before the Excise Act of 1824 had reduced the duty on spirits from an exorbitant to a moderate level, to encourage the legal distillation of whisky. The Act enforced the introduction of the spirit safe in distilleries, but not before tests had been made to ensure that it had no harmful effects on the make. The official experiments were carried out at Port Ellen in 1824. All Islay distilleries were built on the shore-line, because much of their trade was seaborne. A pier was built in 1826. The village of Port Ellen grew up round the pier and eventually overtook Bowmore as the island's port. Mackay was involved in bankruptcy proceedings within months of starting up. He was followed, in rapid succession, by three relatives, none of whom made a success of the business. One of the problems was finding a steady market for the make. The family sent another member, John Ramsay, an importer of sherry and madeira in Glasgow, to put matters right. He gained the confidence in the laird of Islay and was granted a lease of the
distillery in 1836. -John Ramsay (1814-92) was a man of many interests and above all an innovator. He became one of the pioneers of the export trade in Scotch whisky to the United States, inaugurated the first bi-weekly cargo and passenger service by steamship between Islay and Glasglow, was chairman of the Glasgow Chamber of Commerce, was elected Liberal MP for Stirling in 1868 and for Falkirk from 1874 to 1886, received the freedom of Linlithgow for parliamentary services and earned the gratitude of Islay for enlarging and improving the pier at Port Ellen in 1881. When Ramsay passed away in 1892, he owned all of the parish of Kildalton and Oa, had built houses at Carnmore and Kildalton for his own occupation, many minor estate houses, farm houses and steadings, with miles of stone walls, and had done much to improve the standard of farming on the island.
The distillery was carried on under the owndership of Mrs. Ramsay until her death in 1906 when the estate passed to her son, Captain Iain Ramsay of Kildalton (1875-1959), an authority on the birds of Islay. From the time of the restrictions on the whisky industry during the Great War to the introduction of Prohibition in the USA, the business was struggling to survive. Captain Ramsay sold the property and assets in 1920 to the Port Ellen Distillery Co. Ltd., owned by James Buchanan & Co., of London and Glasgow, and John Dewar & Sons Ltd., of Perth, both of which merged with the Distillers Company Limited, of Edinburgh, in 1925. The distillery was one of the many which closed down, some never to re-open, in the economic depression of 1930. In that year, all malt whisky distilleries owned by companies in The Distillers Company Limited were transferred to the ownership of its subsidiary, Scottish Malt Distillers, Ltd. Port Ellen Distillery was used as a maltings and bonded warehouse for the next thirty six years. Production however, did not resume until the mid 1960s.