Sabula was established in 1835 when, according to legend, Isaac Dorman crossed the river from the Illinois side on a log and decided to settle on the present site of Sabula. Sabula is a name of French origin meaning "sand"; this refers to the sandy soil of the area.
In the late 19th century the principal industries in the community included a large "pearl button" factory—which produced buttons from clam shells harvested from large clam beds located in the river adjacent to the shoreline. (The factory is no longer there.) The thriving community also supported a large hog slaughtering industry.
The community did not actually become an island until the lock and dam system was constructed by the Army Corps of Engineers on the upper Mississippi in the 1930s. The construction of Lock and Dam No. 13 between Clinton, Iowa and Fulton, Illinois in 1939 left the lowlands west of the townsite permanently flooded, creating the "Island City," as the town is now known