Palestine, the county seat of Anderson County, is at the intersection of U.S. highways 79 and 287, at the center of the county, some 108 miles southeast of Dallas and 150 miles north of Houston. It was the early home of Daniel Parker and was named after the Parkers' former home of Palestine, Illinois. It was also the home of John H. Reagan and Governor Thomas M. Campbell. When the Texas legislature established Anderson County in 1846, no community existed at the stipulated center of the county, so Palestine was established. A post office opened at the site the next year, and a contract was drawn up for the construction of the first courthouse, which was built on the crest of a low hill. According to a census taken in 1848 by Susan Scott Mallard, wife of Judge John B. Mallard, Palestine at that time had 179 White residents and thirty-one Black. The Mallard home was the oldest still standing in Palestine in 1990. In 1856 a brick courthouse was built, and a few years later four acres was donated for the establishment of the Palestine Female Institute. Soon, small business concerns were clustered around the square; in 1866 twelve dry-goods businesses were in operation. Commerce was served by paddle-wheel steamers that during periods of high water plied the Trinity River to Magnolia, the port for Palestine. Arrival of the International-Great Northern Railroad in 1872 led to the demise of local river shipping, as the railroad opened year-round travel to the east, to Houston, and to Laredo. The road also changed the face of the town, since the line bypassed the courthouse hill and built its shops, switching yards, and offices on level ground nearly a mile to the west. A horse-drawn streetcar line was built to connect the courthouse and railroad station, but that proved to be uneconomical, and the single car was sold to the budding city of Dallas. By 1896 a new depot had been constructed. Large quantities of cotton, lumber, cottonseed oil, and fruit were shipped from Palestine. During the 1880s and 1890s stores, saloons, and lodging houses rapidly formed a new business district by the tracks. This resulted in two business districts, Old Town and New Town, a designation still used in 1990, though the two sections had long before grown together. By the 1890s Palestine had a population estimated at 6,000, several schools, a number of mills and gins, an opera house, a waterworks, a fire department, two private banks, and several churches, including two reserved for African Americans. In 1914 the county's fifth courthouse (still standing in 1990) was completed. Palestine then had a population estimated at 11,000, three daily and five weekly newspapers, saw and grist mills, railroad shops, cotton gins, a cotton compress, a foundry and machine shop, a brick factory, a saltworks, and a creamery.
The discovery of oil in 1928 at Boggy Creek, east of Palestine, diversified the town's economy and carried Palestine through the Great Depression. Several producing fields were later found in Anderson County, and Palestine became a center for oil-well servicing and supplies. In the 1930s Palestine had 350 rated businesses, and by the 1950s its population had reached an estimated 13,000. In 1952 the Missouri Pacific line acquired ownership of the International-Great Northern and in 1956 constructed an office building in Palestine. The railroad made a contract with the city to base a certain number of railroad employees in Palestine. When the Missouri Pacific sold its lines to the Union Pacific in 1982, many railroad jobs in Palestine ended, though a few railroad employees remained there. The Palestine Carnegie Library was 100 years old in 1982. In 1990 the town had a population of 18,042 and 400 rated businesses, including oil and gas producers, well servicers, a beef-packing plant, various small businesses, and the railroad. Four state prisons in the county also provided local jobs. Land use in the county centered on beef and pine timber. Palestine has a council-manager government. It is the site of the National Scientific Balloon Flight Facility, an operation of the National Aeronautics and Space Administration. Each spring the city is host to several thousand who visit the annual Texas Dogwood Trails. Palestine is a terminus of the Texas State Railroad, now a state park, which operates steam excursion trains between Palestine and Rusk. Another tourist attraction by the 1990s was Eilenberger's Bakery, established in 1898, which ships cakes throughout the world. City parks include the 900-acre community forest. Engeling Wildlife Management Area is in the northern part of the county. Lake Palestine, a reservoir of 25,500 surface acres on the Neches River, provides water. In 1990 Palestine still maintained the Herald-Press, a daily newspaper founded around 1900. In 2000 the population was 17,598.