In 1691 missionaries on the expedition of Don Domingo Teran De Los Rios sighted a lagoon which the Indians called Nenocadda. The lagoon, known today as Shipp's Lake, is on the southern edge of present Smithville. Frederick W. Grasmeyer operated a ferry here on the Colorado River in 1836. Steamboats plied the river from 1845 to about 1865.

The village of "old Smithville" was laid out on 640 acres of land granted to Thomas J. Gazley and Lewis Lomas. The town was located on the Colorado River in the northeast section of present Smithville. There were mercantile stores, dry goods shops and a Masonic Lodge. In 1876, the first post office was established with John Pride Jones as postmaster.

The Taylor, Bastrop and Houston Railroad, later a part of the Missouri, Kansas and Texas system [MKT, "Katy"] arrived in 1886 and the town relocated along the tracks.

Legend has it that a coin was tossed to decide if the name would be changed to Burlesonville for Murray Burleson, who gave the land for the railroad depot. The coin toss resulted in "Smithville" being retained as the name, apparently in honor of pioneer settler William Smith.

The town was incorporated in 1895, and T.C.Collins served as the first mayor . Today, Smithville is a municipality with approximately 3.5 square miles inside the city limits.