Before the chapel existed, islanders gathered for worship in a farmhouse living room, and later in a schoolroom fitted with a movable screen serving as both altar and pulpit. By the 1920s the community wanted a proper church of its own, and a public appeal for funds appeared in newspapers in 1926.
An unusual stroke of good fortune followed: an Evangelical Lutheran mission house in Stockholm, due to be demolished to make way for a new street, was donated to the islanders. Its timber was dismantled, shipped to Arholma by boat, and used to rebuild the building on its present site. It was consecrated on 30 September 1928 by Archbishop Nathan Söderblom, who on the same day also consecrated the nearby Björkö-Arholma church. Because the consecration fell on Michaelmas, the chapel was originally known as Mikaelskapellet.
The design is attributed to architect Oscar Holm, a longstanding summer visitor to the island, while the decorative painting was carried out by Harald Lindberg, who had grown up on the neighbouring island of Björkö. The chapel is simple in form: a nave with an attached porch at one end, walls of whitewashed log panelling under a saddle roof, and a roof turret holding the church bell. A weathervane bearing the date 1928 stands at the opposite end of the roof, and the building's stone foundation rests directly on the bedrock.
Inside, the altarpiece was painted by Lindberg in 1927–28 and funded by the then Crown Prince Gustaf Adolf together with Prince Eugen; it depicts a stormy night in which Jesus walks on water towards a group of anxious figures on the shore. A wooden font with a pewter bowl and a three-masted votive ship, donated in 1928 and hanging above the pulpit, are among the chapel's simple furnishings. An electric organ was given to the church in 1975, replacing an earlier harmonium.
According to local tradition described in older sources, the church bell has long marked Saturday evenings and rung in the New Year, with islanders said to walk to the church by torchlight and a reading of Tennyson's New Year poem before midnight. A mid-July scything gathering on the churchyard slope, in the old manner, is also mentioned as a local custom, though it is unclear whether these traditions continue today.