Dilley is on the Missouri Pacific Railroad and Interstate Highway 35 sixteen miles southwest of Pearsall in far southern Frio County. The community was originally called Darlington, after a local landowner who settled in the area in the mid-1860s. The settlement was established on the International-Great Northern Railroad from San Antonio to Mexico, completed during the early 1880s. At the time Darlington had a general store and several dwellings. The community was sometimes called Ford because of a nearby Frio River crossing of an old Spanish trail, known as Rocky Ford. The I-GN built its first railroad depot, siding, and stock pen near the crossing.
Paul and Alex Meersheidt of San Antonio purchased and platted land surrounding the railroad depot and laid out a town with the assistance of a local rancher, W. D. Harris. The name of the community was changed to Dilley in honor of George M. Dilley, an official of the railroad. There is also evidence to suggest that the name may have been derived from that of an early settler in the area named Dillahunty. A Darlington post office had been established in 1885. In 1890 Jim McAllister laid the first telegraph line in Frio County, from San Antonio to Darlington, which that year had an estimated population of fifty and a general store owned by J. N. Harris. The post office was named Darlington at least until 1892. By 1896 the community was officially called Dilley and had an estimated population of fifty. By 1900 the community supported two churches and a one-teacher school with fifty-five students. In 1906 the school had eighty-seven students and two teachers. Dilley was incorporated in 1912.
By 1914 the town had an estimated 1,000 residents, Baptist, Methodist, and Presbyterian churches, the Dilley State Bank, a weekly newspaper, a cotton gin, seven general stores, and two hotels. Dilley had become a shipping center for cattle, vegetables, and fruit. Editor James Howerton established the Dilley Herald in 1923. The second macadamized highway in Frio County was completed from Dilley to Eagle Pass in 1928. By 1929 Dilley had an estimated population of 1,600. The town had the county's sole surviving cotton gin sometime in the 1930s, after the destruction of the industry by boll weevil and cotton fleahopper infestation. Although the population of the community had dropped to an estimated 929 in 1936, it rebounded by 1940 to an estimated 1,244.
Sometime in the late 1940s the Dilley Independent School District was consolidated with the Millett school district of La Salle County. As a result of the fund-raising efforts of Dilley State Bank president F. J. Avant and a nonprofit organization made up of more than 100 residents, a new hospital was constructed in 1950. In 1965 Dilley had a peanut-drying plant and a clinic and rest home, as well as a large statue of a watermelon. The population rose steadily during the 1950s and 1960s, to an estimated 2,318 by 1967. At that time Dilley was the county's second largest town and a commercial shipping point for peanuts, watermelons, and cattle. By 1987 Dilley had an estimated population of 2,773 and fifty-one business operations. Oil exploration in the region was encouraged by a horizontal-drilling technology developed in the late 1980s. In 1990 Dilley was chosen as the site for a new 1,000-bed state prison. The population in that year was 2,632. By 2000 the population had grown to 3,674.