Palestine was named for Palestine, Illinois, by preacher Daniel Parker. Another source says that it was named by migrant Micham Main for the same hometown.

Palestine is a relatively small town located in the Piney Woods, equidistant from the major cities of Dallas, and Houston, Texas, and Shreveport, Louisiana. It is notable for its natural environment, including the dogwood floral blooming season, for having 23 historical sites on the National Register of Historic Places, and as the western terminus of the Texas State Railroad. This steam-and-diesel railroad museum operates tourist trains between Palestine and Rusk.

A trading post was established here about 1843 and some settlers gathered around it. In 1846, the Texas Legislature created Palestine to serve as a seat for the newly established Anderson County. James R. Fulton, Johnston Shelton, and William Bigelow were hired by the first Anderson County commissioners to survey the surrounding land and lay out a town site, consisting of a central courthouse square and the surrounding 24 blocks.

During the Reconstruction era, the town’s growth was stimulated and timber trade was stimulated when the railroad was constructed through here in the 1870s. It had a population of more than 10,000 by 1898.

The International Railroad and the Houston and Great Northern Railroad met in Palestine in 1872 and merged in 1873 to become the International and Great Northern Railroad (IGN). The IGN later became part of the Missouri Pacific Railroad, then ultimately Union Pacific Railroad. In 1875, IGN President H.M. Hoxie moved to Palestine and built the first Victorian mansion there. Successful merchant owners and railroad executives built other elaborate homes along South Sycamore Street.

The IGN built a major depot in 1892 and a modern passenger coach shop in 1902, making Palestine an important locomotive and coach location. These shops remained in operation until 1954. At that time, the present facility was built exclusively for freight-car repair. Today, the Palestine Car Shop is one of only two car shops on the Union Pacific Railroad that perform major modifications and repairs to freight cars.

Regularly scheduled train service ceased in 1921. The line was leased to various railroad companies until 1969, when they abandoned it during national restructuring. The Texas Legislature adapted the railroad as a state park in 1972, to be devoted to operating trains that showed some of the state’s railroad history.

The Texas State Railroad is a state park that allows visitors to ride trains pulled by diesel and steam locomotives between the park’s Victorian-style depots and through the forests of East Texas. This short railroad line dates to 1883.

In 1914, the county’s fifth courthouse was completed, which is still standing and in use. One of the many historical sites is Sacred Heart Church, which was designed by Nicholas J. Clayton.

In 1928, oil was discovered at Boggy Creek, east of Palestine, which added to and diversified the town’s economy. Palestine became a center for oil-well servicing and supplies in support of other producing fields found later elsewhere in Anderson County.