<?xml version="1.0"?>
<ownershipDocument>

    <schemaVersion>X0206</schemaVersion>

    <documentType>3</documentType>

    <periodOfReport>2017-09-27</periodOfReport>

    <noSecuritiesOwned>0</noSecuritiesOwned>

    <issuer>
        <issuerCik>0001703079</issuerCik>
        <issuerName>XAI Octagon Floating Rate &amp; Alternative Income Term Trust</issuerName>
        <issuerTradingSymbol>XFLT</issuerTradingSymbol>
    </issuer>

    <reportingOwner>
        <reportingOwnerId>
            <rptOwnerCik>0001717874</rptOwnerCik>
            <rptOwnerName>Nechamkin Michael Bennett</rptOwnerName>
        </reportingOwnerId>
        <reportingOwnerAddress>
            <rptOwnerStreet1>C/O OCTAGON CREDIT INVESTORS, LLC</rptOwnerStreet1>
            <rptOwnerStreet2>250 PARK AVENUE, 15TH FLOOR</rptOwnerStreet2>
            <rptOwnerCity>NEW YORK</rptOwnerCity>
            <rptOwnerState>NY</rptOwnerState>
            <rptOwnerZipCode>10177</rptOwnerZipCode>
            <rptOwnerStateDescription></rptOwnerStateDescription>
        </reportingOwnerAddress>
        <reportingOwnerRelationship>
            <isDirector>0</isDirector>
            <isOfficer>0</isOfficer>
            <isTenPercentOwner>0</isTenPercentOwner>
            <isOther>1</isOther>
            <officerTitle></officerTitle>
            <otherText>Sub-Adviser Inv Comm Member</otherText>
        </reportingOwnerRelationship>
    </reportingOwner>

    <nonDerivativeTable>
        <nonDerivativeHolding>
            <securityTitle>
                <value>Common Shares</value>
            </securityTitle>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>0</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </nonDerivativeHolding>
    </nonDerivativeTable>

    <derivativeTable></derivativeTable>

    <footnotes></footnotes>

    <ownerSignature>
        <signatureName>/s/ Lisa Harris, Attorney-in-Fact</signatureName>
        <signatureDate>2017-09-27</signatureDate>
    </ownerSignature>
</ownershipDocument>
