MD 261 continues along Walnut Avenue, which curves west at Holland Point and follows the southern shore of Herring Bay to Rose Haven. The highway turns south onto Lakeshore Drive, which forms a U-shape as it passes along the edge of Rose Haven Harbor. West of the harbor, MD 261 passes the Old Colony Cove Site, an archaeological site, and heads west away from Herring Bay along Friendship Road. The highway passes the historic home Holly Hill near its intersection with Boyds Turn Road before reaching its northern terminus at MD 778 (Old Solomons Island Road) in the village of Friendship. Friendship Road continues west as a county highway to MD 2 (Solomons Island Road). MD 261 was originally constructed as two state highways: MD 261 in Calvert County and MD 613 in Anne Arundel County. MD 261 was built as a gravel road from the Chesapeake Beach–North Beach town line south to Fishing Creek within Chesapeake Beach in 1930. The highway was constructed as a gravel road from south of Fishing Creek to Willows Road along a new alignment parallel to Christiana Parran Road, Dalrymple Road, and Old Bayside Road in 1933. The gap in Chesapeake Beach was filled in 1940 when the highway's modern bridge over Fishing Creek and its approaches were completed, replacing a timber bridge that was closer to the shore. MD 261 was widened from and resurfaced with bituminous stabilized gravel from south of Fishing Creek to the Naval Research Lab in 1950. The first portion of MD 613 was built from MD 2 (now MD 778) at Friendship east to Boyds Turn Road in 1934. The highway was extended east to Rose Haven, including its U-shape around Rose Haven Harbor, in 1948 and 1949. In 1956, MD 261 was extended south along Willows Road to its present terminus at MD 263 and north through North Beach into Anne Arundel County, where the North Beach–Rose Haven road was paved. In 1962, MD 261 was extended west along the route of MD 613 to MD 2, which followed what is now MD 778 until it was relocated to the west in 1965.