In 1871, the Central of Iowa Railroad laid track between its Mason City terminal and Northwood to continue its track north to the state line.

In 1877, the Burlington, Cedar Rapids and Northern Railroad (BCR&N) joined the Central of Iowa track with its own track from Plymouth Junction. The site was named Manly Junction after Central of Iowa's freight agent, J. C. Manly, and a post office was established.

By Jan. 1, 1884, a few stores and residences had been built near the junction of the tracks, and the town of Manly was platted.

In 1885, the Chicago, Rock Island and Pacific Railroad (CRI&P) acquired majority stock control of the BCR&N and later took over control of the line.

On Oct. 18, 1898, Manly Junction was incorporated as the Town of Manly. Shortly after the turn of the century, the Chicago, Great Western Railroad constructed an interlock tower to control railroad traffic and switching at the junction.

About 1913, the Rock Island Railroad, which had acquired the BCR&N track and other track into Minnesota, established Manly as the headquarters for the Minnesota Division. Offices, shops, and an electric plant created a construction boom in Manly. In just a couple of years, the town's population went from 345 to almost 1,500, with the addition of 120 shop workers, 110 train crew and their respective famlies. Also about 1913, the interstate Jefferson Highway began construction to run north and south from Canada to New Orleans. The highway ran through Manly along Broadway Street. A fire in the business district later that year destroyed five Elmore Street businesses, all of which were soon rebuilt.

The National Railroad Shopmen's strike began in July 1922 and went on for several years, ending Manly's period of rapid growth.

In August 1973, the "Town of Manly" officially became the "City of Manly" under the State of Iowa's Home Rule Act.

In 1980, the CRI&P was liquidated in bankruptcy and ran its last train on March 31. The loss of the railroad was devastating to the economy of Manly.

Manly owes its existance to the proximity of the railroads and highways. Today, Iowa Route 9 runs through Manly providing east and west connections, U.S. Highway 65 runs north and south along the west side of the city, and just eight miles to the west is Interstate Highway 35 with connections to Des Moines and Minneapolis-St. Paul. Manly retains good rail service with the Union Pacific Railroad's main line and the Iowa Northern Railroad, which acquired the CRI&P switch yard and track to Cedar Rapids.