Ganado, on U.S Highway 59 nine miles east of Edna, is the second largest town in Jackson County. Its position on the Southern Pacific Railroad made it a shipping and retail center for eastern Jackson County. An informal cluster of cabins at the site was originally called Mustang Settlement, after Mustang Creek. Early settlers, including John Menefee and Jim McFarland, were chiefly cattle ranchers who drove their herds to New Orleans over the Old Spanish Trail or to northern markets in Kansas City. In 1881–82 the Galveston, Harrisburg and San Antonio Railway was built through the area near Mustang Settlement. Viewing a large body of cattle from his rail car window, an official of the company remarked that the place should be called Ganado-Spanish for "herd." The name stuck; the railroad erected the Ganado station later that year, and the town grew up around it. A post office came the next year. Jim McFarland moved his general store from its earlier location on McFarland Creek to a site in town. After McFarland died, Thomas Babcock-who was also the town's first postmaster-bought the remaining stock and continued a store in the building. Babcock's establishment, later known as the Old Texas House, provided supplies to local ranchers. Soon afterwards, Babcock also established the first residence and first cotton gin in Ganado.
In 1891 a large number of northern Scandinavians purchased land and began farming in the area. Although many of the old settlers were initially wary of these outsiders, they came to respect the Scandinavian colonists as a "hard-working, industrious class of people." Ganado continued to flourish with a number of German and Bohemian immigrants throughout the 1880s and 1890s. Many became civic leaders. In 1891 T. N. Mauritz opened the first bank in Ganado. By 1909 the town had sixty businesses. The Ganado Independent School District was formed in 1900, and by 1914 the 750 residents had added a rice mill, a rice warehouse, another bank, and a weekly newspaper named the Jackson County Independent. By 1950 the population had increased to 1,253. In 1988 forty-three businesses served 1,770 citizens. In 1990 the population was 1,701, and in 2000 it was 1,915.