1930s–1940s

The first proposal to build an airport was made in June 1929 by the Toronto Harbour Commission. The commission proposed a four-stage plan, starting with an "air harbour" for seaplanes, while the final stages proposed filling the then-regatta course lagoon between the sandbar and Hanlan's Point. Toronto City Council at that time agreed to the "air harbour" but "in no way—either by implication or suggestion—implies approval of the ultimate development of a combined air harbour and airport." In August 1935, Council reversed its position and approved the airport project by a vote of 15–7, against the opposition of Toronto mayor Sam McBride (who was serving as a Councillor at the time). City Council received approval from the Government of Canada to spend $976,000 ($22 million in 2025 dollars) on a tunnel under the Western Gap. That fall, after construction began, a federal election was held and William Lyon Mackenzie King was elected as prime minister. King's government reversed the previous government's decision and cancelled the tunnel.

Trans-Canada Air Lines was expected to begin operations in 1937, so in November 1936, City Council (without McBride, who died days earlier) formed an "Advisory Airport Committee" to advise on where to build a municipal airport. The committee proposed several locations and of these two were approved by the Government of Canada, which agreed to fund one-quarter of the project. The two sites were the Island and Malton, north-west of Toronto. A seaplane and land airport would be built at the island, and an auxiliary field was to be built at Malton. The project would fill in the regatta lagoon and extend the airport site on both the east and west sides. After two days of debate, City Council voted 14–7 to approve the construction of both airports.

The site of the airport had been home to Hanlan's Point Stadium, numerous cottages, Hanlan's Point Amusement Park and the regatta course. The 54 cottages and their cottagers were moved to today's Algonquin Island (then named Sunfish Island). The seaplane base was first used in 1938. The paved runways and the terminal building were opened in 1939. In April 1939, Toronto Council voted to name the airport Port George VI Island Airport to commemorate an upcoming visit by King George VI in May 1939. The first commercial passenger flight to the airport was a charter flight carrying Tommy Dorsey and his swing band for a two-day engagement at the Canadian National Exhibition on September 8, 1939 operated by a Douglas DC-3. It was also the first airliner from the United States to arrive in Toronto. A 48-person cable ferry service was inaugurated to the airport.

During World War II, the island airport became a military training base. From 1940 until 1943, the Royal Norwegian Air Force used the island airport as a training facility. Barracks were built nearby on the mainland at the foot of Bathurst Street. The nearby Little Norway Park is named in remembrance of the Norwegian community around the airport. For the duration of the war, the airport was used by the Royal Canadian Air Force for training pilots and as a waypoint for transporting planes. After the war, the airport returned to civilian uses. Flying clubs and several aviation companies set up at the airport, offering services such as aircraft rentals, air freight, charter flights, pilot training and sight-seeing flights.

1950s–1960s

By the end of 1952, the accumulated cost of running the island airport, and paying the interest on the debt of construction, totalled $752,000 ($8.7 million in 2025 dollars). Toronto Mayor Allan A. Lamport, one of the original supporters in 1937 of building the island airport, began a renewed effort, along with the Harbour Commission, to expand the airport, hoping to make it profitable. He pushed for a deal to turn over Malton Airport to the Government of Canada in exchange for improvements at the island. The Government of Canada was amenable to the deal and expanding the island airport, and installed an air traffic control system in 1953, but no comprehensive agreement was yet made. An agreement was reached in July 1955, but an impasse arose between the governments over the terms of the agreement. The impasse was settled in 1957. Runway construction began in 1959 and was finished in 1960.

By 1956, takeoffs and landings at the island reached 130,000 per year, many of them private flights to Muskoka and Haliburton. In July 1960, the airport recorded its millionth movement (take-off or landing) since air traffic control was installed in 1953. The Toronto Flying Club's move to the island from Malton in 1960 caused a large increase in traffic. For 1961, the airport recorded 212,735 movements, of which 168,272 were for local traffic, including student flights. By number of movements, the airport was the busiest in Canada. The cost of operating at the island airport forced the club to close and sell its 12 planes after less than a year, however.

The airport improvements, including a new hangar, the new 4,000 ft (1,219 m) main runway, and night-time landing lights, were completed in 1962.