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When Michael Denholm returned to Tasmania in the late 1970s, he became involved in organising poetry readings. Discussions with poets and other writers led to a proposal for a new literary magazine to feature Tasmanian writers. With Andrew Sant and Tim Thorne, Denholm founded the Tasmanian Review, publishing the first issue in June 1979. In March 1981, the magazine was renamed Island Magazine, indicating a shift in editorial policy to produce a more national magazine.
In 1989 Denholm and Sant edited First Rights: A Decade of Island Magazine, bringing their term as editors of Island Magazine to a close. Cassandra Pybus was appointed editor and the magazine soon displayed the shortened title Island. During Pybus's term, circulation increased substantially and the reputation of the magazine grew to rival many of the older mainland literary quarterlies. But Pybus's editorial practices, which included employing non-Tasmanian guest editors, caused a conflict with members of the magazine's board who wanted to maintain a Tasmanian focus. In 1994 the board requested her resignation, ending Pybus's term in controversial circumstances, and prompting heated debates in mainland magazines.
Rodney Croome, a prominent Tasmanian gay rights activist, was appointed editor of Island after a short interim period. This coincided with mainland criticism that Island was fast becoming a parochial publication and did not deserve funding from the federal government. With the magazine in financial difficulty, the editorial board challenged this assertion, but, regardless, Croome followed an editorial policy that he later called 'Voicing the South'. In 1999, continuing financial difficulty influenced a 'strategic planning process' with the support of Arts Tasmania , resulting in a change of editorial policy to that originally voiced by Denholm and Sant: 'The two criteria which determine the selection of material for the journal are excellence and variety'. This policy was implemented by David Owen, who was appointed editor in late 1999.
Matthew Lamb was appointed Editorial Director and Features Editor in 2013, with Geordie Williamson as the fiction editor and Sarah Holland-Batt as the poetry editor. Geordie Williamson was replaced by Anica Boulanger-Mashberg as fiction editor in 2016; both Boulanger-Mashberg and Holland-Batt left their roles in 2019. Matthew Lamb left his role as editor in 2015.
In 2015, Island stopped producing an online edition and expanded its print run significantly. In late 2019, Island announced that it has not secured Arts Tasmania funding for 2020-2024, and would need to explore additional avenues for funding.