Peel railway station opened on 1 July 1873 as the western terminus of the Isle of Man Railway's Douglas to Peel line. It was the island's first railway line, and Peel was its end of the world. The station was built right by the harbour. The decision to put it there came late, in 1872, when the Isle of Man Railway abandoned plans to extend the line further to Ramsey and decided the terminus would stay in Peel. A small goods depot was added next to the platforms, on the side away from the harbour. The original wooden station building served for 38 years before being replaced in 1911 by a new building partly built in local sandstone, which is the structure that still stands today.

In a normal weekday during July 1922, twelve trains arrived at Peel from Douglas. Nine were split trains, sharing the run with services bound for Ramsey, dividing at St John's. Three were complete trains from Douglas. The first arrival was 8:58 am. The last was 11:40 pm. The average time for the 11½ miles from Douglas was 40 minutes. Regular service ran for 92 years. The line closed on 13 November 1965, then resumed briefly on 3 June 1967, then ceased for good on 7 September 1968. The reopening of 1967 was celebrated at Peel: nearly the railway's whole stock of serviceable locomotives and carriages gathered on site, including five steam engines, with a fair on the station forecourt. It was the last gasp before the long closure.

The last time a locomotive worked the Peel site was in 1998, for the Steam 125 celebrations marking the anniversary of the line's opening. Locomotive No. 1, Sutherland, was operated on a short section of temporary track laid in the car park where the island platform once stood. The car park itself sits where the platforms used to be. Plans have surfaced over the years to create permanent sections of track from the station, but none have come to fruition. The Manx Transport Museum Group has its headquarters in the nearby former brickworks office and holds a number of railway-related items. The whole quayside has been redeveloped, with many of the buildings around the station repainted in period style. The area is one of the most-visited corners of Peel.

After the final trains departed in 1968 the station stood unused for years. The rails were lifted in 1975. The locomotive shed at the eastern end had a fire that had compromised its wooden lean-to, and the shed was demolished at the same time as the rails. The water tower beside it survived. The site became a boat park; the main station building became a shelter for fishermen. The goods shed found a remarkable new occupant in 1979. That summer Odin's Raven, a two-thirds scale replica Viking longship built in Norway and sailed to the Isle of Man, arrived to celebrate the millennium of the island's parliament. The goods shed was reconfigured to house it. A wooden Viking ship now sits where lead, coal, and herring once moved through.

When the House of Manannan museum was built on the site in 1997, the old station building was incorporated into the new development. The 1873 station is therefore not just preserved but actively used as a display area for one of the island's major museums. The water tower is part of a visitor's centre operated by the local heritage trust and now houses one of the railway's original 1873 carriages, cosmetically restored. The goods shed displays Odin's Raven. The station, water tower, and goods shed all survive: Peel is the most intact of any closed station on the Isle of Man Railway network. A replica fishtail semaphore signal stands at the end of the old yard. A small set of replica level crossing gates marks the line. The Manx Transport Museum holds an original four-wheel coach body nearby as a future restoration project. The trains are not coming back, but their station has been busier in retirement than many railway buildings ever are in service.