Edwin F. Piersol and Elizabeth D. Piersol from Lancaster, Pennsylvania, conceived the idea for the grandeur of the Hotel Bayou and were its early owners (although original plans were for it to be called the Susquehanna Inn). The construction costs were financed in part by a stock company run by a board of directors, of which T. Milton Carroll Sr. was one and Michael H. Fahey, Treasurer of The Graw Race Track, was the mortgage holder. Although construction of the Bayou began in 1918, completion was delayed by World War I and sometimes by legalities or lack of funds. The architect was John B. Harmon of Lancaster, Pennsylvania, and the builder was the E.F. Piersol Construction Company of Havre de Grace, who advertised in 1919 in The American Contractor (Vol. 40) for a separate contractor to build a garage and swimming pool. The Piersols conveyed the premises in 1921 to the Hotel Bayou Company (with Piersol holding the mortgage) which owned it until 1935.

The indoor swimming pool (called the “Hotel Bayou Baths”) and heating plant were constructed off the premises of the hotel but nearby in what is now known as the Decoy Museum. It is shown on the 1930 Sanborn Insurance Map. The hotel also had an 18-Hole Miniature Golf Course at 300 Giles Street for use by the hotel guests between 10 a.m. and midnight. Also shown on the 1930 Sanborn Insurance Map, the golf course may have closed in 1934 with the demise of the hotel. In 1972 two apartment buildings with 12 units each were built on the miniature golf course property, now known as 300 Giles Street.

This luxury hotel was in its heyday in the Jazz Age of the 1920s when it was run by a colorful and well-known Baltimore restaurateur named William Pinkney West. West’s management and cuisine as well as the superb location of the building overlooking the Upper Chesapeake Bay and the Susquehanna Flats, were the chief reasons for its success. They even had dancing to the music of The Bayou Jazz Five and Orville Jacob's Orchestra. Sportsmen came by train from New York, Philadelphia, Delaware, and Baltimore to hunt ducks—canvasbacks in particular—on the fertile Flats and to attend race meets at the Havre de Grace horse track, called The Graw. Babe Ruth was a frequent visitor to the hotel as well as some of the wealthiest names in the east, including John Pierpont Morgan, the DuPonts, the Wanamakers and many others. The Bayou was also known as one favorite place to stay for Al Capone, who would bring friends when he came for races at The Graw or to fish and hunt in the 1920s.

Forced to close in 1934 following the Great Depression and a November 1929 fire that gutted the third and fourth floor and roof, as well as changes in laws for duck hunting, the Bayou and its furnishings were sold to two Baltimore attorneys for the Franciscan Sisters of the Catholic Church in 1935. They converted the building into a home for aged nuns under the new name, St. Francis Villa. They added the two-story tower on the north wing and a chapel. In 1953, the local Dr. Charles Foley, Sr. (1895-1957) and his family purchased the property and converted the building into rental apartments, called the Bayou Villa Apartments. Jerry Farro, Jr. held his wedding reception here in the ballroom in 1953.

After the death of Dr. Foley, Sr. his children inherited it and after yet another fire, Dr. Charles Foley, Jr. (1927-2006) and his sisters donated the Bayou Villa as well as the building now known as the Decoy Museum to the City of Havre de Grace in 1976. It totaled seven acres of waterfront property. Following that, the Bayou Hotel sat empty, suffering from the fire damage as well as vandalism. In response to a public hearing, when citizens expressed strong interest in preserving the building, the City sold it in July 1983 to Havre de Grace Ventures Limited Partnership. In 1983, the National Park Service designated the Bayou a National Historic structure. The building was renovated with assistance by The Maryland Historical Trust and developed into luxury condominium apartments.

Sadly, a local man named Edward “Eddie” Matthews, not yet 23, lost his life in 1984 during the renovation. While digging for the elevator shaft, a wall collapsed on the workers.

The apartments are now owned individually and managed by Bayou Investors General Partnership.