In 1909 a group of Wisconsin pioneers began construction of the Craig Mountain Lumber Company and sawmill in Lewis County, Idaho. Locating its head office in Spokane, the company was organized under the laws of the state of Washington and on March 17, 1909 the Articles of Incorporation were filed in Olympia. On July 4, 1910 the first log was sawed, and, as the trees were cut, a new town was built. Alex Kaline, a prominent citizen of the nearby community of Winchester, and later a state senator, moved his post office and store to the new site; the two towns consolidated and established themselves on the present site of Winchester, about 40 miles southeast of Lewiston.

The mill was not only the largest in northern Idaho, but since expensive and up to date machinery was installed, it was also the finest of its class. It had one of the largest stocks of shop and factory plank in the Inland Empire and the Craig Mountain Cork Pine it produced was much in demand in the lumber markets of the East. The mill was equipped with two single cutting band saws and had a capacity of 120,000 board feet every ten hours (the normal working day). From the mill the lumber was taken to the drykilns, then to the planers, after which it was graded and shipped. In 1910 the mill employed 270 men who worked a ten hour day for between 25 and 75 cents an hour.

For many years the town's only source of water and electric light was furnished by the lumber company. Service was provided through the company's subsidiary the Winchester Townsite Company which also provided houses for lumber company employees.

In September 1909 the Craig Mountain Lumber Company began construction of a six mile railroad to transport its lumber to Craig Junction where it could be transferred to the Camas Prairie Line. Service on the new railway began in January 1911; the passenger and freight train ran twice daily. In 1921 Craig Mountain Lumber Company Railway was incorporated under the laws of the state of Idaho and became Craig Mountain Railway.

During World War I the I.W.W. attempt to unionize the mill workers failed. In 1919, with 30 million board feet of lumber in the yard and another million feet in the pond, and no market for their product, the mill shut down. It reopened in 1922, but the depression of the 30's hit Winchester hard and in December 1930 the mill was again forced to shut down; it did not reopen until January 31, 1935. In 1950 the Craig Mountain Lumber Company, under the management of W.C. Geddes, sold out to the Hallack and Howard Lumber Company of Denver, who, in turn, sold out to Boise-Cascade in 1960. In March 1965 Boise-Cascade announced that its timber was now located too far from the mill to be economically transported and the mill was shut down for good.