Canyon is at the junction of U.S. Highway 60 and Interstate Highway 27, near the center of Randall County and southwest of the old T Anchor Ranch headquarters. In December 1887 Lincoln Guy Conner surveyed and settled at the site. He laid out the town in the spring of 1889, his dugout serving as home, general store, and post office. A. L. Hammond established the second business and a blacksmith shop, and suggested the name Canyon City, after nearby Palo Duro Canyon, when Conner refused to have the settlement named after himself. When Randall County was organized in July 1889 Conner's home was the voting place for that precinct, and Canyon City was chosen as the county seat. Lumber for commercial buildings was hauled from Quanah by mule-drawn freight wagons. A temporary, two-room frame building served as a courthouse, where church services and other community gatherings were held. Conner established the town's first real estate office and built the Victoria Hotel. Beginning in August 1890 several newspapers, the Echo, the Keystone, the Headlight, and the Battleship, appeared briefly. In 1896 Mrs. R. W. Morgan began publishing the Stayer; George A. Brandon renamed this paper the Canyon City News after buying it in 1903. The first telephone line reached Canyon City from Amarillo in 1896.
The arrival of the Pecos and Northern Texas Railway in 1898 made Canyon City a major shipping point for cattle and cotton and a receiving center for such necessities as coal and lumber. Acres of cattle pens were built on land donated by Conner; W. C. Kenyon ran a wagonyard and seven saloons. The population reached 530 by 1904. That year L. T. Lester opened the Stockman's National Bank, later the First National Bank of Canyon. A telephone exchange was installed in 1902, and construction boomed in anticipation of further rail service. By 1910 ten real estate firms, including the Texas Land Company and Keiser Brothers and Phillips, were operating in Canyon City. A brick school building and several churches were built, and on September 29, 1906, residents voted to incorporate, with Jasper N. Haney as first mayor. The Commercial Club and other civic and social organizations were begun at that time. In 1907 the completion of the Santa Fe line from Canyon City to Plainview marked the retirement of the mail hack and stage line between the two towns. The following year a volunteer fire department was organized and an electricity and ice plant installed. C. O. Keiser purchased the Canyon City News and began calling it the Randall County News; R. A. Terrill was editor. In 1909 a waterworks and sewer system were installed, and a brick courthouse replaced the original frame building. Since many of Canyon City's settlers were Confederate veterans, annual reunions of the Stonewall Jackson Camp of United Confederate Veterans were staged there for ten years.
In 1910 the Santa Fe's Llano Estacado line connected Canyon City with Floydada. West Texas State Normal College (now West Texas A&M University) opened on a forty-acre site donated by Conner, but classes were held in the courthouse until the completion of the college's first building in 1911. That year the town was renamed Canyon. By 1915 the population was 1,500, and industries included two banks, grain elevators, a tannery, and the twenty-five-room Palace Hotel. The Ford Motor Company established Canyon's first automobile dealership in 1919, and in 1920 Clyde W. Warwick, editor of the Randall County News since 1910, bought the paper; he later renamed it the Canyon News. On December 2, 1921, fire destroyed several buildings on the south side of the town square. Nevertheless, during the 1920s Canyon enjoyed new growth because of above-average rainfall. The first American Legion post in the Southwest completed its headquarters at Canyon in 1921. Streets and highways were paved, streetlights added, and natural gas piped in from the Panhandle oil and gas field north of Amarillo. The Santa Fe Railroad erected a new depot, new elementary and high school buildings were constructed, and the Methodist, Baptist, and Presbyterian churches built new brick buildings. The Randall County Library opened in 1927.
During the Great Depression of the 1930s the city's three banks were consolidated under the ownership of the First National Bank. The Panhandle-Plains Historical Museum was established in 1932, new buildings on the university campus were constructed with Work Projects Administration funds, and a new post office building was opened in 1937. The population reached 2,622 by 1940 and 4,349 by 1950. After World War II the economy continued to depend on the production of wheat, grain sorghums, dairy products, and livestock, as well as on West Texas A&M University. City projects completed by 1966 included water and sewer improvements and street extensions. Though Canyon's businesses decreased from 163 in 1967 to 137 in 1985, tourism was enhanced by the expanding Panhandle-Plains Museum and the nearby Palo Duro Canyon State Scenic Park, with its summer outdoor drama, Texas. In 1987 three public schools, two city parks, a hospital and nursing center, a radio station, a new county library and city hall, and new county government facilities attested to Canyon's continuing growth, as did several new housing developments such as Hunsley Hills, just north of town. The population was 5,864 in 1960, 8,333 in 1970, 10,724 in 1980, 11,365 in 1990, and 12,875 in 2000.