Situated at the upper end of the John Day Valley, on the John Day River. Prairie City grew out of the former mining camp of Dixie, which was situated a short distance up Dixie Creek. Prairie City was the western terminus of the Sumpter Valley Railroad which extended over Dixie Summit and Tipton to Seneca and then to Baker City; passenger train service was discontinued in 1937, freight service continued through World War II, but the line was abandoned in 1947.
Prairie City boasts a number of historic stone buildings and the Dewitt Museum in the former Railroad Depot. The current economy includes ranching, a lumber mill, a wood-fired co-gen electric power plant, and a number of retail vendors and public services.