The first non-native activity in the Keystone area of the Black Hills was the discovery of placer gold two miles east on Battle Creek in 1876, which led to the settlement of Harney City, named after Mount Harney. Placer gold was known to exist in abundance during the first two years of mining activity, but the great depth of the deposits made them difficult and impractical to reach.

The first permanent settler in the area was Fred J. Cross who settled in a cabin one mile north in Buckeye Gulch in 1877 and throughout the years collected many rich specimens of gold from his mining properties. The settlement was called Crossville.

In 1883, the Harney Peak Hydraulic Gold Mining Company was organized to employ hydraulic means to mine the gravel beds which was later known as Keystone. This was done on a gigantic scale on property adjacent to Battle Creek. Two flumes were built to carry water from both Grizzly Bear Creek and Battle Creek. A trestle was built 200 feet overhead at the confluence of the two creeks for a span of 700 feet. The main flume was designed to carry water to the main diggings. Over a period of one and a half years, considerable gold was taken from what was known as Mitchell's Bar.

In that same year, 1883, the Etta Mine was located one mile south as a mica mine. Soon after the location of the mine, a black ore was discovered and identified as cassiterite (tin oxide), an ore of tin. The Harney Peak Mining, Milling, and Manufacturing Company comprised of American and English stockholders, spent over two million dollars in the area acquiring over 1100 mining claims and constructing three reduction plants during the next ten years. The company was better known as the Harney Peak Tin Company. Interest in gold took a back seat because this company paid good wages.

In 1891, William B. Franklin, Thomas G. Blair, and Jacob Reed located the Keystone Mine and named the community after the mine. Jacob Reed platted the original town site on the placer claim named for him. The town grew slowly until the discovery of the rich ledge of gold-bearing quartz at the base of Mt. Aetna. This new claim was located by Franklin and Blair on June 28, 1894. Many of Franklin's friends suggested he name the new location after his wife, a fairly common practice at the time. Franklin quite often frequented the many saloons in Keystone and his wife, Jenny, would end up having to drag him home by the arm. Franklin would wink at his friends and say, "Ain't she a holy terror?" The new Holy Terror Mine turned out to be one of the richest gold producers in the country. The Holy Terror and the Keystone Mine later merged, their shafts connected by horizontal tunnels, but they continued to operate two separate mills. The Holy Terror Mine reached a depth of 1200 feet.