Lake State began operations in 1992 when it acquired all the linesoperated by the Detroit and Mackinac Railway. One of the lines acquired was originally Michigan Central from Bay City to Cheboygan. Another line—originally D&M trackage—branched off in Pinconning and followed Michigan's eastern coastline to Rogers City. The trackage north of Gaylord to Cheboygan was abandoned shortly thereafter. While a few minor spurs were abandoned, no other mainline was until 2001, when its line past Alpena to Rogers City was removed. In 2005, Lake State acquired 67 miles of trackage from CSX Transportation around Saginaw, Midland, and Bay City. This trackage is operated under the subsidiary Saginaw Bay Southern Railway. In late 2011, it was announced that the SBS would merge with Lake State, with LSRC being the surviving company. The merger was strictly for railway accounting purposes; LSRC functions today as an Interline Settlement System carrier, while SBS functioned as a Junction Settlement carrier through CSX. Lake State will convert the former SBS lines to ISS. Following the news of the merger, Lake State has stopped painting the Saginaw Bay Southern logo on its locomotives. In 2018, Railway Age awarded Lake State with their "Shortline of the Year" award. In March 2019, LSRC began leasing 53 miles of the CSX Saginaw Subdivision from Mt. Morris to Plymouth.
Lake State utilized the Detroit and Mackinac Railway's all-ALCO roster, repainting a handful of Alco RS3, and ALCO Century Series locomotives in the Lake State blue scheme. Lake State's first acquisition was in November 1995—a former Norfolk and Western RailwayALCO RS-11. Keeping with the D&M tradition of numbering engines after the month and year of purchase, the unit was given the number 1195. Starting in 1998, eight units of Canadian National heritage were added to the roster. Seven of these units are MLW M-420s, while the eighth is an HR412W #698. Lake State Railroad named several of its locomotives after cities located on its line, such as #181, #798, #3564, #1280, #1195, #976. In a similar fashion, the #975, #3563 and #371 were named after Lake Huron, Lake Superior, and Lake Erie. The most unusual nicknaming was of #3571: 'For the Gipper 2004' after the late 40th President of the United States, Ronald Reagan. Since the acquisition of the Saginaw Bay Southern lines north of Flint, MI, the railroad has added 27 used Electro Motive Diesel units and gradually retired their ALCO roster. The first of these units included three GP38Ms from Western Rail in Washington state. An EMD SD40 #5921 of Grand Trunk Western heritage was purchased from Larry's Truck & Electric. This unit is unique in that it doesn't operate north of Bay City. The majority of the EMD units are EMD GP40s. Ten were acquired from First Union Railroad. All share mixed Chessie System/Seaboard System heritage and were upgraded from GP40 to GP40M-3 by the Texas Mexican Railway. The next group of locomotives included five original GP40s of mixed heritage and a unique former Southern PacificEMD GP40X. All six were acquired from Helm Financial Corporation. In early June 2013, five EMD SD40-2s were purchased from CIT Rail Resources. All units were built as EMD SD40s with mixed heritage and were later converted to Dash 2 standards. In late spring 2016, Lake State acquired two EMD MP15AC locomotives from Union Pacific. #1501 was originally built in October, 1980 as Missouri-Kansas-Texas #57. #1502 was built in January, 1976 as Milwaukee Road #436. January 2019, Lake State acquired six SD50-2's from CSX - #2477, #2490, #2498, #8527, #8577, #8599