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The USS Hatteras raided Cedar Key in January 1862, burning several ships loaded with cotton and turpentine and destroying the railroad's rolling stock and buildings on Way Key.An archaeological dig at Shell Mound, 9 miles (14 km) north of Cedar Key, found artifacts dating back to 500 BC in the top 10 feet (3.0 m) of the 28-foot-tall (8.5 m) mound.The only ancient burial found in Cedar Key was a 2,000-year-old skeleton found in 1999.Arrow heads and spear points dating from the Paleo period (12,000 years old) were collected by Cedar Key historian St.Clair Whitman and are displayed at the Cedar Key Museum State Park.Repairs to the Florida Railroad were completed in 1868, and freight and passenger traffic again flowed into Cedar Key.

The Town of Cedar Keys was incorporated in 1869, and had a population of 400 in 1870.

Followers of William Augustus Bowles, self-declared "Director General of the State of Muskogee", built a watchtower in the vicinity of Cedar Key in 1801.

The tower was destroyed by a Spanish force in 1802. 4" was later applied to a boat channel next to the fort, and then to a railroad trestle and a highway bridge over that channel.) In 1840, General Zachary Taylor requested the Cedar Keys be reserved for military use for the duration of the war, and that Seahorse Key be permanently reserved for a lighthouse.

A town was platted on Way Key in 1859, and Parsons and Hale's General Store, which is now the Island Hotel, was built there in the same year.

On March 1, 1861, the first train arrived in Cedar Key, just weeks before the Civil War began.

In October 1862 a Union raid destroyed sixty kettles on Salt Key capable of producing 150 bushels of salt a day.