American Flyer was established in 1907 in Chicago. They manufactured Clock Work trains and later Wide Gauge and from 1915 "O" Gauge Electric Trains.

In 1928 American Flyer bought parts of the Ives corporation, but in 1938 the American Flyer line was bought by The A.C. Gilbert, Co. of New Haven Connecticut, headed by A.C. Gilbert the inventor of Erector sets and many other toys.

Gilbert had already begun the manufacture of an HO line of trains. At the end of World War 2, Gilbert resumed train and toy production, but introduced a new gauge, "S" Gauge. Scaled to 3/16 to the inch and running on two rail track.

The A.C. Gilbert, Co., acquired by The Wrather, Corp., in the early 60's, was closed in 1966.

In May 1967, Lionel Corporation announced it had purchased the American Flyer name and tooling even though it was teetering on the brink of financial failure itself. Within two years, Lionel Corp. was bankrupt itself and had sold its train lines to General Mills, including the unused American Flyer tooling. In 1979, General Mills' Lionel division started to reissue Flyer products under that name employing a mix of previously unused railroad heralds and traditional Gilbert American Flyer designs.

In the 80's and 90's the company was sold several times, but since 2002 Lionel has increased the number of American Flyer offerings.