The Keith & Dufftown Railway was first proposed in 1845 as part of the Banffshire Railway, but an act authorising the construction of a railway from the Great North of Scotland Railway station at Keith was not authorised until 27 July 1857. The line was to be worked by the GNSR, who also provided funds for its construction. Funds for the scheme were, like many of the proposed branches, not forthcoming, and a slightly longer route was re-authorised by parliament on 25 May 1860.
The Keith & Dufftown Railway was opened to traffic on 21 February 1862 with stations at Earlsmill, Botriphnie & Drummuir, with the first two later being renamed Keith Town and Auchindachy respectively.

Like other GNSR-worked branches the Keith & Dufftown Railway was amalgamated with the GNSR in 1866. The Strathspey Railway, opened on 1 July 1863 continued the route to Craigellachie (where the line connected to the Morayshire Railway which ran to Elgin), and thence down the Spey Valley to Boat of Garten (on the original Highland Railway mainline). Passenger services between Keith & Dufftown were withdrawnn on 6 May 1968, goods services to Aberlour (on the strathspey Railway) continuing to run via Dufftown until 15 November 1971. Shipments of grain to Dufftown (for the local distilleries) kept the Keith & Dufftown Railway open for freight traffic until 1 October 1985, after whjich the branch was retained for British Rail railtours and charters.

In 1991 the branch was finally abandoned by British Rail, and was subsequently sold to the Keith & Dufftown Railway Association for £11 (£1 per mile). The connection to the mainline was lifted in 1998, isolating the branch so that preserved railway services could be offered on the Dufftown - Drummuir section using Class 108 Diesel Multiple Unit in 2000. This has now been extended to Keith Town, and it is likely that the mainline connection at Keith Junction will be reinstated during 2003 at the request of the freight operator English Welsh & Scottish Railways (EWS) who want to convey freight to Dufftown.