Island Heights was incorporated as a borough by an Act of the New Jersey Legislature on May 6, 1887, from portions of Dover Township (now Toms River Township), based on the results of a referendum held on November 18, 1886.
As of the census of 2000, there were 1,751 people, 705 households, and 497 families residing in the borough. The population density was 2,909.2 people per square mile (1,126.8/km²). There were 807 housing units at an average density of 1,340.8/sq mi (519.3/km²). The racial makeup of the borough was 97.77% White, 0.11% African American, 0.46% Native American, 0.63% Asian, 0.06% from other races, and 0.97% from two or more races. Hispanic or Latino of any race were 1.37% of the population.
There were 705 households out of which 28.8% had children under the age of 18 living with them, 57.0% were married couples living together, 10.5% had a female householder with no husband present, and 29.4% were non-families. 24.3% of all households were made up of individuals and 9.8% had someone living alone who was 65 years of age or older. The average household size was 2.48 and the average family size was 2.97.
In the borough the population was spread out with 22.4% under the age of 18, 6.6% from 18 to 24, 24.5% from 25 to 44, 29.2% from 45 to 64, and 17.3% who were 65 years of age or older. The median age was 43 years. For every 100 females there were 92.8 males. For every 100 females age 18 and over, there were 87.4 males.
The median income for a household in the borough was $61,125, and the median income for a family was $72,596. Males had a median income of $47,500 versus $38,375 for females. The per capita income for the borough was $26,975. About 2.6% of families and 4.1% of the population were below the poverty line, including 3.5% of those under age 18 and 9.1% of those age 65 or over.