Overcrowding at Brisbane Gaol in 1863 led to the use of the hulk "Proserpine", anchored at the mouth of the Brisbane River. as a prison. Its 30 male prisoners went each day to work on St Helena Island until 18 May 1867 when the island itself was proclaimed as a Penal Establishment. On the same date the Hon. William Thornton was appointed as Visiting Justice, William Hobbs was appointed Visiting Surgeon, and John McDonald as Superintendent.
On 16 Nov 1875 St Helena was proclaimed "a gaol, prison, and house of correction", a high security prison for long-term inmates. On 5 Jul 1879 it was again proclaimed a Penal Establishment.
The main functions of the penal establishment/gaol were prison administration and punishment for prisoners. However, St Helena was soon considered a model prison of its time. Highly disciplined and isolated, it enforced self-sufficiency, resulting in economic profit. Prisoners cleared the native vegetation, planted crops and constructed buildings using the island's resources wherever possible. A lime kiln was erected in 1869 to burn coral for the making of cement. Maize, vegetables, sheep and cattle herds provided the island residents with their food requirements.The prisoners also produced highly regarded sugar cane and award-winning Ayrshire dairy cattle; its olive oil production also won prizes in Italy. As the prison became established, the range of industries continued to expand. In the 1870s, trade workshops were erected selling their products to the mainland. Some prisoners were trained as saddle makers, tinsmiths, boot makers, tailors, blacksmiths and carpenters.
The administrative staff of the St Helena penal establishment consisted of a Superintendent and a number of Warders, and a Visiting Justice and Visiting Surgeon.
In 1895, Comptroller-General Captain Charles Pennefather was already advocating the construction of a new prison in the south of the colony, stating that St Helena was unsuitable for the appropriate classification of prisoners, and by the 1920s it was decided to wind down the prison. It then functioned as a prison farm. Long-term prisoners were transferred to Boggo Road Gaol while the remaining prisoners dismantled the prison buildings. St Helena was finally closed in December 1932.