Jerry Dammers of the ska revival band The Specials started the record label in 1979. It spawned the 2 Tone music and cultural movement, which was popular among skinheads, rudies and some mod revivalists. The label stopped operating in 1986. 2 Tone Records signed The Selecter, Madness and The Beat, but they all left within two years. 2 Tone Records acts signed a contract that allowed them to leave the label after releasing just one single, which was unusual in the record industry. Madness and The Beat both took advantage of this clause; the former to sign to Stiff Records, and the latter to start their own label, Go Feet Records.
Although 2 Tone Records was closely identified with the ska revival, efforts were made to broaden the label's musical output, releasing recordings by artists such as singer-songwriter Elvis Costello and the funk-punk band The Higsons. Two bands that almost made it onto the label were UB40 and Dexys Midnight Runners.