Attracted by abundant water from a natural lake, settlers began moving to this area in the late 1840s. Ranching provided the earliest commerce. In addition to cattle and sheep, ranchers raised racing horses for sale in the southern states. Cattlemen brought their herds to the lake area until they were ready for transfer to Belmont (20 miles north), where a branch of the Chisholm cattle trail was located.
George W. Colley, considered to be the founder of Smiley Lake community, moved here in 1879. Near his home he built a steam-powered cotton gin and sawmill. He was joined later by Major W. M. Phillips who opened a mercantile establishment here in 1883. The settlement of Smiley Lake, named for early pioneer Jim Smiley, was located on the Cuero-Rancho trade route between San Antonio and the Gulf port of Indianola.
The village once had a saddle factory, blacksmith shop, wire fence plant, newspaper, general stores, drugstore, school, baptist church, an I. O. O. F. Lodge and a post office established in 1884. When the Galveston, Harrisburg & San Antonio Railroad completed lines nearby in 1906, the town of Smiley was moved to the present location (one mile north).