The first distillery to use the name "Banff" was built by James McKilligan & Co. in 1824 on Banff Bay in Inverboyndie. In 1837, ownership was transferred to Alex Mackay, and then, in 1852, to James Simpson Sr. In 1863, James Simpson Jr. built a new distillery, also in Inverboyndie. This distillery had better access to rail transport and a better water source in the springs on Fiskaidly farm.
The distillery had a particularly bad fire in 1877 which damaged or destroyed much of the distillery apart from the warehouse. By October of the same year, Simpson had rebuilt the distillery and restored operation. In 1921, Simpson's family sold a portion of the distillery to the London-based Mile End Distillery Company. In 1932, a subsidiary of Distillers Company Ltd. bought the entire distillery for £50,000, and stopped production immediately.
On 16 August 1941, a Nazi Junkers Ju 88 attacked the Banff distillery and destroyed warehouse No. 12. Many whisky casks burned and a great deal of stock was lost. Farmers reported that the whisky had run into nearby water supplies and intoxicated the local animal population. When renovation was finally completed, the distillery returned to operating status and continued to produce whisky until it was finally mothballed in 1983.
By the late 1980s, most of the distillery's buildings had been dismantled or demolished. The stills at Banff were fed by hand with coal until 1963, when a system was put in place to deliver the coal mechanically. In 1970, the stills were converted to be heated by oil burners. Cooling water was drawn from Burn of Boydine. Banff used a triple-distillation process until 1924.