Henry Flagler commissioned the construction of the Alcatraz Hotel with the intention of attracting wealthy tourists who were traveling south for the winter on his railroad, which was known as the Florida East Coast Railway. Architects Carrère and Hastings from New York City were responsible for its design, which was an example of the Spanish Renaissance Revival style. The Ponce de León Hotel, which is located directly across the street and is now a part of the Flagler College campus, was also designed by the firm. Particularly noteworthy is the fact that both of these buildings are among the earliest instances of poured concrete constructions anywhere in the globe. In later years, these architects were responsible for designing the Russell Senate Office Building in Washington, District of Columbia, as well as the New York Public Library in New York City.

However, the hotel shut down in 1932 after years of serving as an attractive winter resort for wealthy customers. It had a steam room, a massage parlor, sulfur baths, a gymnasium, a three-story ballroom, and the largest indoor swimming pool in the world.

The building was purchased by Otto C. Lightner, a publisher from Chicago, on August 20, 1947, with the intention of transforming the ancient hotel into a museum dedicated to hobbies. He utilized the area to host a number of collections, one of which was his own enormous collection of artwork from the Victorian era. After that, he handed it over to the city of St. Augustine, and in 1948, the museum actually opened its doors to the general public.

In addition to being an attraction in and of itself, the structure is centered around an open courtyard that features palm trees and a stone arch bridge that spans over a koi aquarium.

Located in St. Augustine, Florida, the Lightner Museum, which is housed in the building that formerly housed the Hotel Alcazar, is renowned for its paranormal activity. Both visitors and employees have reported experiencing weird incidents and seeing spirits.

During their time in the elevator, several guests have reported experiencing weird occurrences, such as unexpected decreases in temperature, lights flickering, and the feeling of being touched.

A number of people have the belief that the museum, and more specifically the women's wing of Ponce de Leon Hall, is haunted by the soul of Ida Alice, who was Henry Flagler's second wife.

Visitors commonly describe seeing the restless spirits of two little sisters who met an untimely end on the site, as well as Joseph Andreu, a keeper who tragically fell to his death while painting. Visitors claim to have seen all three of these individuals.

There are many who claim that Flagler himself is the ghost that is haunting the college. The hotel displayed Flagler's body in the foyer for public viewing after his death. Many believe that his presence lingers in the halls, watching over the place he once cherished. Whispers often emerge from the eerie silence, prompting speculation that he continues to vigilantly guard his legacy.