Fairhope was founded in November 1894 on the site of the former Alabama City as a Georgist "Single-Tax" colony by the Fairhope Industrial Association, a group of 28 followers of economist Henry George who had incorporated earlier that year in Des Moines, Iowa. Their corporate constitution explained their purpose in founding a new colony: to establish and conduct a model community or colony, free from all forms of private monopoly, and to secure to its members therein equality of opportunity, the full reward of individual efforts, and the benefits of co-operation in matters of general concern. In forming their demonstration project, they pooled their funds to purchase land at "Stapleton's pasture" on the eastern shore of Mobile Bay and then divided it into a number of long-term leaseholds.

The corporation paid all governmental taxes from rents paid by the lessees, thus simulating a single-tax. The purpose of the single-tax colony was to eliminate disincentives for productive use of land and thereby retain the value of land for the community."Fairhope Avenue" was one of the properties on the 1910 version of the board game The Landlord's Game, a precursor of Monopoly.In 1907, educator Marietta Johnson founded the School for Organic Education in Fairhope.

The school was praised in John Dewey's influential 1915 book Schools of Tomorrow. Dewey and Johnson were founding members of the Progressive Education Association. Fairhope became a popular wintering spot for artists and intellectuals. Sherwood Anderson, Clarence Darrow, Wharton Esherick, Carl Zigrosser, and Upton Sinclair were among its notable visitors.The Fairhope Single-Tax Corporation still operates, with 1,800 leaseholds covering more than 4,000 acres (16 km2) in and around the current city of Fairhope.

Despite the ideals of the corporation, the town has transitioned from utopian experiment to artists' and intellectuals' colony to boutique resort and affluent suburb of Mobile. White flight from nearby Mobile has caused the population of Baldwin County to almost triple since the 1940s, and particularly since desegregation, contributing to the mostly-White demographics of Daphne, Fairhope, and Spanish Fort.In 2019 the New York Times termed Fairhope to be "A Southern Town That’s Been Holding On to Its Charm, for More Than a Century".