Matagorda is near the Colorado River mouth and East Matagorda and Matagorda bays, on State Highway 60 and the Atchison, Topeka and Santa Fe line in southern Matagorda County. The community was established after Stephen F. Austin secured permission in 1827 from the Mexican government to build a town to protect incoming settlers. Elias R. Wightman, Hosea H. League, James E. B. Austin, and partners Thomas M. Duke and William Selkirk each took a one-quarter interest in the townsite. After laying out the town in 1827, Wightman gathered approximately fifty to sixty colonists, mostly from New York, for the community. On August 1, 1829, the proprietors met and elected town officers, as their constitution had provided. They also donated lots to some individuals in return for their special services. From the beginning, cotton was important; a gin was in operation in the area as early as 1825. Matagorda was incorporated in 1830, and by 1832 it had some 1,400 residents; there were an additional 250 people living outside the town but within its jurisdiction. Beginning in the 1830s, the town, then the closest port city to New Orleans, served as an entry point for immigrants arriving both overland and by sea. A Mexican customhouse was established in 1831, and a chamber of commerce was in operation by 1840. James H. Selkirk constructed one of the first dock-and-warehouse businesses in the town, and freight moved along the Colorado River despite a raft of logs and debris that impeded river passage. The raft was successfully removed in 1929, but until then water behind it was used for irrigation, and the threat of Colorado River flooding remained.
Representatives from Matagorda attended meetings and conventions leading up to the Texas Revolution. Men from Matagorda signed a pledge to protect Goliad, and were among those who signed the Goliad Declaration of Independence in 1835. Residents left the town deserted in the Runaway Scrape, but returned to form Matagorda County (1836) with Matagorda as county seat (1837). After the revolution, the town grew as a shipping point and became a center for a social life characterized by Southern culture. As early as 1837 the community published a newspaper, the Matagorda Bulletin. Theaters and hotels were operating by 1838, and around 1845 one observer noted that many owners of plantations on the Colorado River and Caney Creek, where the summers were unhealthful, had summer homes in Matagorda. Local schools were soon established, including Matagorda Academy (which had opened by 1839), Lafayette Academy, and a Young Ladies School. After the 1854 Education Act set aside state land for schools, the county was divided into six school districts, with the first public schools opening at Matagorda.
During the Civil War, Matagorda was one of eight Texas ports used by blockade runners who removed tons of cotton and delivered guns, munitions, clothing, and other goods to the Confederacy. A blockade interrupted trade, and federal soldiers fired at the town, but none came ashore. Matagorda residents formed several militia groups, among them the Matagorda Coast Guards. The conflict reduced trade, emancipation brought an end to the plantation economy, and Matagorda declined. After the war, farmers turned to cattle raising. A burgeoning beef industry led to the establishment of the Stabler Patent Beef Packing Plant in 1866 and a hide and tallow factory in 1870. Ranchers and a few remaining planters kept homes in town. The community was repeatedly damaged by hurricanes, including those in 1875, 1886, and 1894; these storms were partly responsible for the changing of the county seat to Bay City in 1894. Until that year, several factories, the Morgan Lines, and river transportation had made Matagorda an important port; after 1894 it remained a market for cotton, cattle, and fruit. The Cane Belt Railroad reached the town around 1901. By 1904 the local school for Whites had 115 pupils and two teachers, and the school for Blacks, twenty-six pupils and one teacher. The community was on the Gulf Intracoastal Waterway by 1914. Beginning in the 1920s, two producing oil wells and the local operations of the Texas Gulf Sulphur Company provided employment and drew new residents to the area. During the 1930s the Culver Shell Dredging Company produced material for road building and chicken feed. Fish and oysters became the basis for another major local business, though seafood suffered a declining market in the 1930s. In 1933 Matagorda had about thirty-three businesses, including a bank and an ice plant. At that time it also had three churches. In 1937 the Matagorda White school had 183 pupils and nine teachers, while the Black school had thirty-seven pupils and one teacher. A hurricane in 1942 caused major damage and prompted the construction of a protective levee around the town; this lessened the effects of Hurricane Carla in 1961. The population of Matagorda was reported at 1,250 in 1942, but declined to 650 by 1950. After World War II Matagorda became a tourist and resort community. In 1990 the population was 605, with some seven businesses; in 2000 the community had thirty businesses and 710 inhabitants.