Sherman is in central Grayson County seventy-five miles north of Dallas on U.S. Highway 75. The city is also intersected by U.S. Highway 82, State highways 11 and 56, and the tracks of the Missouri, Kansas and Texas, Southern Pacific, and Burlington Northern rail lines. The community, which is in the center of the county, was designated as county seat by the act that established the county on March 17, 1846. Thomas J. Shannon was one of the first settlers in the area. The town was named for Gen. Sidney Sherman, a hero of the Texas Revolution and one of the state's earliest railroad promoters. A log courthouse was among the first buildings constructed in Sherman, and settlers soon began moving into the new community, which grew rapidly as a merchandising center. A post office began operating in 1847. The town originally was on a hill just west of its present location. In 1848 Sherman was relocated to a site three miles east of the original location. By 1852 400 people lived in Sherman, which "consisted of a row of clapboard business buildings along the east side of the public square," and, among other things, two saloons, a district clerk's office, a doctor's office, and a church. By the end of the decade the town had incorporated and was a stop on the Butterfield Overland Mail route through Texas.
The community was not immune to the sectional passions that flared during the 1850s, and by 1860 the county commissioners' court had established an armed detachment of men to patrol the county in search of runaway slaves and abolitionist threats to law and order. In 1862 the publisher of the Sherman Patriot, an anti-secessionist Whig newspaper, was murdered. The Civil War years witnessed William C. Young's organization of a force of 1,000 men from the Sherman area. This group became the Eleventh Texas Cavalry of the Confederate Army. Despite hardships imposed by wartime, Sherman continued to grow and develop during the early 1860s. In 1861 the community's first flour mill began production and became the foundation of industrial development. Although outlaw bands led by Jesse James and William C. Quantrill appeared in Sherman during and after the war, and a period of lawlessness and depression accompanied Reconstruction, the town remained active and relatively prosperous through the end of the decade. Dry goods stores, warehouses, grocery stores, law offices, a newspaper, and two churches served the community. The Sherman Male and Female High School, also known as the Sherman Male and Female Institute, began accepting students in 1866, making it one of three private schools registering students in Sherman.
Sherman experienced tremendous growth and development during the 1870s. Its population reached 6,000, various new industries, including a cottonseed oil mill and a steam-powered cracker factory, began operations in 1871. In 1873 the Sherman Male and Female High School became the North Texas Female College and offered primary, preparatory, and college education. In 1876 Austin College, a male college, relocated to Sherman from Huntsville. Although the Houston and Texas Central Railway extended its tracks to the community in 1872, thereby quickening the already rapid business and industrial expansion, its residents failed to subscribe a large enough bonus to attract the Missouri, Kansas and Texas line to build to Sherman. Such a connection would have linked the city and the county to the profitable markets of the Northeast, as well as to a national rail system. When officials of the Missouri, Kansas and Texas chose to establish a terminal at the newly established town of Denison, a few miles north of the county seat, "great civic jealousy" arose. Although after 1880 the MK&T and other national rail systems would build to Sherman, for the time being Denison became the county's rail and marketing town. Two fires in 1875 destroyed all of the buildings south of Sherman's city square and all but two buildings east of the square. As a result a large part of the city was rebuilt with better materials, giving Sherman a more attractive and stable appearance. By the late 1870s Sherman was considered an important town due to its commercial activity. It served as a produce market for farmers from across the county and from areas west of the county. By the 1880s Sherman had become "a thoroughly stable community and had pretty well lost all traces of the rawness of the frontier." The local business community included five flour mills, an iron works, and three newspapers. A public school system was established in 1883, and, along with Austin College, the North Texas Female College, and Mary Nash College, provided Sherman with a wealth of educational institutions. The city suffered a devastating blow on May 15, 1896, when a tornado cut through the west side of town, destroying some fifty homes and killing between fifty and eighty people.
By the turn of the century Sherman's population reached 10,213. During the first two decades of the twentieth century two more rail lines extended their tracks into the community, which also boasted the state's first electric interurban railway, linking it with Denison. The city's first hospital, St. Vincent's, opened its doors in the early 1900s. Sherman's population increased from 12,412 by World War I, to which the city contributed a field artillery battery, to 15,031 by the mid-1920s. By the latter date Sherman's fifty-four industrial plants, producing such goods as flour, cottonseed oil, and hardware, earned the city the nickname "Fifth Industrial City of Texas," although it actually ranked sixth in the state in value of annual production. Served by five railroads, the town held an equal place with Denison as Grayson County's rail center. Sherman had thirty-two wholesale establishments, 410 businesses, six private academies and colleges, as well as six public elementary schools and two public high schools, and the city was recognized as one of the state's leading educational and industrial centers.
The Sherman riot of 1930 gained the town notoriety as the scene of one of the South's major race riots. On May 3 of that year, George Hughes, a Black farm laborer, was accused of raping a white woman outside of Sherman. In addition, he was accused of shooting at two sheriff's deputies who attempted to capture him. Following his surrender, the man was indicted by a grand jury in Sherman, and went on trial on May 9. Despite warnings from the Texas Rangers that violence was likely should the trial be held in Sherman, Hughes was tried in the Grayson County seat. A mob of angry white people surrounded the courthouse and, after threatening violence, set it on fire. While the structure burned, the accused rapist was trapped in the courthouse's fireproof vault, the flames preventing his rescue. The mob then burst through the concrete lining of the vault with dynamite. The body was taken by the mob and burned in the center of Sherman's Black district. A period of rioting and violence against local Blacks followed before order was restored.
Although its population growth slowed during the 1930s, likely due to the Great Depression, 15,713 people lived in Sherman by the mid-1930s, and some 410 businesses, including sixty-four industrial plants, operated locally. While Kidd-Key College (formerly the North Texas Female College) closed its doors in 1935, a number of private schools and colleges remained open. By the late 1940s Sherman's population had risen to 17,156, and 408 businesses served the city. At least some of this growth was associated with the county's acquisition of a site near Sherman for an airfield. This tract of land was leased in 1941 to the federal government, which constructed and operated Perrin Army Air Field there. During the years of American involvement in World War II, some 2,500 potential pilots a year received basic instruction at the base, which was deactivated in November 1946, reactivated in 1948 as Perrin Air Force Base, and remained in service through much of the succeeding three decades. Another wartime project, the building of Denison Dam and the creation of Lake Texoma, also contributed to the postwar growth of the Sherman-Denison area. Oil was discovered within the city limits in the 1950s, which gave a further boost to the local economy.
Sherman's population increased dramatically during the second half of the twentieth century, rising from 20,150 in the mid-1950s to 26,100 in the mid-1960s and 30,400 in the mid-1970s. Its businesses increased in number from 575 to 750 and then declined to 628 during the same period. By the 1970s Sherman was the home of about forty manufacturing plants that turned out products ranging from salad oils and shortenings to disposable hospital products and integrated circuits. In 1990 Sherman's population stood at 31,584, and about 600 businesses employed the local workforce. The manufacturing community remained at about forty producers, turning out such goods as clothing, rifles, coffee, meats, hospital products, and electronic components. By 2000 the number of inhabitants had increased to 35,082, and the number of businesses had jumped to 1,953.