Founded in 1887, Granbury started as a square and log cabin court house. Many of the buildings on the square are now registered historic landmarks, including the Granbury Opera House, which still hosts Broadway productions. The city name originated from the Confederate General Hiram B. Granberry. Some scholars, to explain why the city name is spelled differently, believe the name Granberry was misread on a document, but recent findings have concluded that Granberry chose to spell his name Granbury.

Granbury and Hood County are rich in Texas history. David (Davy) Crockett's wife, Elizabeth, settled in Hood County in 1853 following the Texas Revolution against Mexico. Crockett, as well as other Alamo participants, received 640 acres in land grants. The Crockett family received land in what is now Hood County. Elizabeth Crockett is buried in Acton State Historic Site, the smallest state park in Texas. A large statue of Elizabeth Crockett marks her grave site. Several of Crockett's descendants still reside in Hood County.

John Wilkes Booth, according to Granbury legend, moved to Hood County and assumed the name of John St. Helen. A store on the historic town square, St. Helen's, is named after him.