William Mackenzie founded Dailuaine in 1851 in a small woodland about a mile from the main road, located at the other end (north end) of the Ballindalloch estate, opposite Cragganmore. Twelve years later, the Speyside Railway was built to Carron on the opposite bank of the river and connected to the distillery via a public road bridge, which greatly facilitated Dailuaine's access to markets. The distillery was rebuilt in 1884, and Alfred Barnard noted during his visit in 1887: 'In the past few years, the entire distillery has been almost completely renewed, rebuilt in a larger, more modern style, and now the distillery includes all the latest advances in distilling technology.' It was one of the largest Highland distilleries of its time. Mackenzie incorporated the company as a limited company in 1890, and merged with Talisker in 1898 to form Dailuaine-Talisker Distilleries Ltd. At that time, the company's business was in the hands of Mackenzie's son Thomas, who had established the Imperial Distillery the previous year. Thomas died in 1915 with no successor, and Dailuaine-Talisker was acquired by its main customers Walker's, Dewar's, W.P. Lowrie and D.C.L. In 1917, a great fire destroyed most of the property, which was subsequently rebuilt. The distillery underwent a major reconstruction between 1959 and 1960; the floor malting was converted to a Saladin box system, the number of stills increased from four to six, and mechanical coal heating was introduced (changed to indirect heating in 1970). At the same time, the distillery also installed a dark grains plant. Locally grown barley was used until 1983. Dailuaine was always designed to produce whisky for blends and malt whisky, and was not released as a single malt bottling until 1991.

The pagoda roof of Dailuaine Distillery—later becoming the mainstream for malt whisky distilleries—was destroyed by fire in 1917. The distillery suffered another fire disaster in 1959, prompting the reconstruction project mentioned earlier. In 1897, the distillery purchased a 0-4-0 saddle tank locomotive built by Barclay of Kilmarnock to transport goods to Carron Station. It operated until 1939, when it was replaced by another locomotive from the same manufacturer, later named "Dailuaine No. 1." Its bright paint and polished brass fittings led a former driver to exclaim: "Extremely pleasing to the eye." After the Speyside railway line closed in 1967, the locomotive was donated to the Railway Museum in Aviemore. It was later returned to U.D. (United Distillers) and is currently on display at Aberfeldy Distillery.