Founded in 1901, the town of Garwood is located on land once occupied by Preston Gilbert, one of Stephen F. Austin's "Old 300" colonists, who acquired the acreage in 1827. In 1896, Marcus Hervy Townsend, Thomas A. Hill, and William Thomas Burford bought part of Gilbert's original league of land as a farming and ranching investment. By 1901, they had begun rice production, developed a canal and irrigation system, and platted a townsite on their land.
Towsend was a lawyer and Texas legislator. Hill was a prominent merchant and banker, while Burford was a druggist and planter who served as Colorado County sheriff from 1898-1902. They named their town for Judge Hiram Morgan Garwood, a friend of Townsend who never lived in Garwood or in Colorado County. Streets and avenues were named for early area settlers, other friends of the founders, and for the founders themselves.
From the town's inception, its economy has been based on rice production. The gravel industry, oil and gas production, and duck and goose hunting are also important businesses here. Throughout its history, the small community has been an important part of Colorado County's heritage.