Socialist Alternative was officially formed as Labor Militant in 1986 by members of the Committee for a Workers' International who had moved to the United States and formed the Labor and Trade Union Group in the early 1980s. Labor Militant was a small group with its membership numbering mostly of trade union members. By the mid-1990s, Labor Militant became part of a campaign to form the Labor Party where it was in the leadership of the New York Metro Chapter. The New York Metro Chapter, the largest in the country, saw Labor Militant and its allies run again for the leadership of the chapter under the United Action slate only to be defeated in an Executive Committee election. Labor Militant members and the United Action slate had argued that the Labor Party should vigorously run candidates against the Democrats, whereas the national leadership of the Labor Party refused to take such an approach. After the election, the New York Labor Party State Executive upheld the election results while suspending the New York Metro Chapter and several of its officers, eventually shutting down the chapter.
In the late 1990s, Labor Militant changed its name to Socialist Alternative to reflect what was classified as a change in the political period. From 1998 to 2002, the Socialist Alternative party was active in the anti-globalization movement. It was present at many of the major protests during this time, including the N30 Protests in Seattle. At these protests, it argued that the movement should take up the key demands of "abolish the IMF, World Bank and the WTO", "cancel the international debt", "papers for all undocumented immigrants" and "take the banks and financial institutions into public ownership".
In 2004, Socialist Alternative party members initiated Youth Against War and Racism (YAWR) as a sustained campaign against the wars in Iraq and Afghanistan. YAWR worked mainly in high schools primarily in counter-recruitment activism in several cities. In 2005, several hundred Seattle's high school students walked out of class in order to march in protest of the war in Iraq causing conflict with parents and school officials who contended that the students should focus on school during the day. Following protests by members of YAWR and Socialist Alternative against military recruitment in schools, the Seattle School Board enacted some restrictions on military recruiters at Seattle high schools. The changes included limiting military recruiters to visiting twice a year to each school despite the demands by the YAWR protesters for a total ban on military recruitment at schools.
The Socialist Alternative party supported the candidacy of Ralph Nader during the 1996, 2000, 2004 and 2008 presidential elections. In the time leading up to the 2008 presidential election, the Socialist Alternative party criticized Barack Obama, pointing to his pro-free market stance on job creation, his record in congress of voting in favor of bills such as the Foreign Intelligence Surveillance Act, his stance on healthcare reform and on other issues.
In 2012, they supported Green Party candidate Jill Stein in her run. Despite criticism from other socialist groups about supporting "bourgeois candidates", Socialist Alternative argued that Stein supported a green New Deal jobs program, ending wars, canceling student debt, a single-payer health care system and other reforms supported by the party.
In 2013, the Socialist Alternative party garnered attention when it successfully elected a member (Kshama Sawant) to the Seattle City Council—Sawant is one of the few elected socialists in the United States. In February 2017, Socialist Alternative reported that membership in the party had grown by more than 30% since the presidential election of Donald Trump.