The town was founded 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. It 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.
DeFuniak Springs was established as a final-destination resort, and the developers enlisted the cooperation and aid of the Chautauqua Movement. The Chautauqua Hall of Brotherhood, an auditorium seating 4,000, was constructed on Lake DeFuniak in the center of town. Seminars, classes, and the like were held in the Hall of Brotherhood building for people on vacation. The auditorium of the building was severely damaged by Hurricane Eloise in 1975 and razed. However, a charitable foundation, The Chautauqua Hall of Brotherhood Foundation, Inc., has undertaken a capital campaign for the historic restoration of the building. The westerly portion of the building facing Circle Drive is still in use.
As part of the intellectual atmosphere of the town, a college and a private high school (named Palmer College and Palmer Academy, respectively), as well as a technical school (Thomas Industrial Institute) and a teacher training school (Florida Normal College) were established in the 19th century. Florida Normal College was later incorporated into Florida State University, while the other schools closed during the Great Depression. There remains a College Avenue that once led to Palmer College.
As demonstrated through the Chautauqua movement, many residents of DeFuniak Springs have always had an active hand in education. In 1886, the town held an important meeting that forever changed the course of public education in Florida. At this meeting, teachers from around the state formed the Florida Education Association. This teachers' union remains the state's predominant voice for educators and is affiliated with the National Education Association and the American Federation of Teachers.
The town also contains various other historically significant landmarks. Near the Chautauqua Hall of Brotherhood building is the Walton County Library on Circle Drive, the oldest extant library in the state of Florida. The library contains an interesting assortment of antiquities, including an impressive medieval weapon collection and many first-edition books. First Presbyterian Church is the only private structure in the Lake Yard, the park surrounding the lake. Also situated on Circle Drive are the Walton County Heritage Museum, housed in the former L&N railroad depot, and St. Agatha's Episcopal Church, built in 1895-1896. Although Walton County was opposed to secession, the first monument to the Confederate war dead constructed in Florida is located on the lawn of the Walton County Courthouse.