In anticipation of the Southern Pacific Railroad being constructed through the area, wealthy entrepreneur Coffee Rice purchased several hundred acres of land. Unfortunately, construction of the railroad took longer than expected and Rice never saw its completion. In 1892, after the death of his son, Rice sold his property to Adams Stowell and R.E. Jack. In preparation for the railroad's arrival, a townsite was laid out in 1893, and in 1895 the rails finally reached town. The depot was completed in 1896, and farmers from Arroyo Grande began transporting their produce there. The Oceano Hotel and a beach pavilion were also built at this time, with a boardwalk connecting them to the depot.

At the turn of the century, Oceano had a general store, blacksmith shop, saloon, homes, and ranches. In 1904 developers purchased a large tract of land and constructed the Oceano Pavilion, followed by a 1,000 foot pier in 1908. In 1905, the Villa Hotel was constructed; by 1914 the Villa became a Buddhist Monastery, touted as the only one in North America at the time. Through the 1920s, developers with big plans came to Oceano, but none of their plans took off. By 1931, Oceano had settled as a small transportation center for the area's farms.