Diamond City sites on a bank of what used to be the White River at the site of Dubuque, a mid-nineteenth century town. Until its demise after the Civil War, Dubuque was the last stop on the White River for northbound steamboats.

When the river was dammed at Bull Shoals in 1952 to form Bull Shoals Lake, the city of Lead Hill, which had become the area's main town, was moved from its site to the intersection of Arkansas Highways 7 and 14. Meanwhile, the high bank of the White was left alone. For many years, the fine fishing on the Diamond City peninsula was known only to the locals. Initially founded in 1953 as a town called Sugar Loaf, Henry Dietz began to develop the site in the 1960s. He incorporated the town in 1966 as Diamond City, where it remains as a quiet, picturesque paradise.