Located in the heart of downtown historic St. Augustine, Henry Flagler, a railroad tycoon, built the Hotel Alcazar as a sister hotel to the Hotel Ponce de Leon. Thomas Hastings and John Carrére, architects of the New York City Library, designed the hotel in the Spanish Renaissance style and built it with poured concrete. Flagler intended his hotel to be less expensive and less formal than the Ponce de Leon. It also opened earlier and stayed open longer during the season.

The hotel opened on Christmas 1888 with an incomplete casino and baths. The hotel was finally completed with an indoor pool, ballroom, arcade of stores, casino, and baths. High diving in the pool, bowling lanes, tennis courts, provided, and cake walks entertainment at the hotel. The Hotel Alcazar hosted more guests than the Ponce de Leon and required expansion; a fourth floor and a larger dining room were added. Notable guests include President Grover Cleveland and Will Rogers.

By the early 20th century, the Hotel Alcazar was closed as a hotel. In 1946, Otto Lightner bought the hotel to use as a museum for his collection of oddities. Presently, the Hotel Alcazar houses the St. Augustine city offices and the Lightner Museum.