In 1850, the Federal Government offered the newly formed Illinois Central Railroad sections of land along a corridor from Chicago to Cairo. This land was to be sold to finance what was then the longest rail line in the world. Land developers and settlers began buying land and many towns like Paxton were laid out.

Paxton, first called Prairie City, then Prospect City, was named after Sir Joseph Paxton, an English architect who was interested in organizing an English Settlement in Illinois. The colony never materialized but being the only town in the new county, it became the county seat. An early influx of farmers and businessmen made up a core of hard working citizens. This combination gave the town a strong socio-economic base. The combination of hope and hard work was augmented by three periods of Swedish immigration.

Soon after the Civil War, Paxton became a showcase of many building styles from the simple workman's cottage to the ornate Victorian, the Italianate and the Queen Anne designs. Many of the homes built in the 1860-80 period are still useful and well kept living places. Preservation by owners and the City of important landmarks has fostered a sense of worth for the heritage of the town. The small building that served as the first public school in 1856 and the rare 80' tall brick water tower and pump house erected in 1887 have been listed in the National Register of Historic Places.

Paxton also saw the establishment of Augustana College in 1865 and an early public high school in 1872. These efforts were aided by a community effort to establish and fund Rice Collegiate Institute which added to the educational and cultural advantages of the community.