Following numerous requests for a light in Lough Swilly, a visit by the Elder Brethren of Trinity House in 1872 concluded that Dunree Head should be lit. Among their recommendations, which also included a light on Buncrana Pier, they proposed locating a lighthouse at Dunree Head, on the high ground to the north of the fort. The height of the cliff here was sufficient that a traditional lighthouse tower would not be required.

The lighthouse was built in 1875, complete with a walled compound around the lighthouse, and accommodation for a keeper. The entire light station consisted of a sixteen-sided (hexadecagonal) lantern room at ground level, attached directly to the front of a single storey keepers' house, with a Chance Brothers optic installed within.

Rather tragically, this unusual yet picturesque little lighthouse seems to have seen little in the way of maintenance since it was replaced by a modern utilitarian tower in 2015, which stands in front of the lantern room. The conical roof of the lantern is rusting, and the inside is looking forlorn. With the nearby fort and cafe that overlooks the Lough drawing in tourists, there has been talk of the lighthouse being turned into a visitor attraction, however there is yet to be any evidence of this becoming a reality.