In 1891, the steamer Edmund Burke struck an underwater ledge at Loon Island. The accident led to the construction of a lighthouse on this small island near the middle of the lake. The wooden tower was built in 1893 by the Woodsum brothers, owners of the lake's steamships, at a cost of $400. In 1896, the lighthouse ironically caught fire when the fire department was working on repairs. Using just the one bucket they had, the firemen extinguished the fire with lake water, and finished their repairs.
The tower was struck by lightning in 1960 and burned down. It was rebuilt that same year, after a fund drive for private contributions. In the 1980s, solar panels were installed in the lighthouse.
The Great Depression of the 1930s took its toll on Lake Sunapee, and as tourism declined the steamboats and grand hotels disappeared. Though steamboats full of summer travelers no longer cruise the lake, Loon Island Lighthouse still guides the watercraft that use the lake for recreation.