Colony is on State Highway 95 nine miles northwest of Flatonia near the western boundary of Fayette County. It was established in 1880 by a group of migrants from Mississippi who intended to raise cotton in the fertile soil. The original name, Mississippi Colony, was shortened to Colony when the post office was established in 1884. By 1900 Colony had a store, a blacksmith shop, three Protestant churches, and a population of 141. In 1906 the post office closed, and mail was routed through Flatonia. The soil was easily eroded and soon lost its productivity, however, and during the first half of the twentieth century the land reverted to unimproved pasture. Although two churches remained in 1947, all other businesses had disappeared, and children attended school in nearby Cistern. Many area residents moved to other population centers, and the ranches were operated by absentee owners. The discovery of the Muldoon oilfield improved the financial situation of the landowners but came too late to rejuvenate the community itself. In the 1980s one church and a cemetery remained.