Published in 1935, its music was written by Hugh Williams (pseudonym for Will Grosz) with lyrics by prolific songwriter Jimmy Kennedy. The song was inspired by the "red sails" of Kitty of Coleraine, a yacht Kennedy often saw off the northern coast of Ireland and by his adopted town Portstewart, a seaside resort in County Londonderry.
The song was revived by Nat King Cole in 1951. This recording was released by Capitol Records as catalog number 1468. It first reached the Billboard magazine Best Seller chart on July 13, 1951 and lasted 2 weeks on the chart, peaking at #24. 
The title of the song provides the inspiration for the Red Sails Festival held annually in Portstewart, Northern Ireland. Kennedy wrote the song while staying in Portstewart.