The town of Lytle Texas was named for John T. Lytle, a rancher and traildriver active in the area in the 1860s. He helped to establish Lytle Station on the International-Great Northern Railroad in 1882, making this the only town in the county having a railway station at the time. When a post office was granted in 1883, it was named for the train stop, which was near the Lytle-McDaniel Ranch and had a general store, a bar, and a casketmaker named W. J. Garnand, who became the first postmaster. Lytle was a shipping point and retail center for area ranchers and corn and cotton farmers.

By 1884, Lytle had a population of fifty, a union church, a district school, a hotel, and a physician. By 1892 the community had a population of 100, four general stores, a gin, two livestock breeders, and a Methodist church. In the late 1890s coal mining became a factor in the area's economy, and the population of Lytle rose to 150 by 1896.

The town survived a severe drought in 1885 and a hailstorm in 1895. By 1904 the population was listed as 212, and Lytle School had sixty-two students and two teachers. The town was originally incorporated in 1912. By 1914 the town's population had increased to 600. The school had 127 students. The weekly newspaper was called the Herald. The town had telephone service, an additional general store, and two lumberyards. The Medina Valley Irrigation Company's plans to establish a facility in Lytle did not develop as expected because the company went into receivership in 1917. Lytle was no longer incorporated in 1930. A local physician, Dr. W. H. Joyce, assumed the presidency of the Chamber of Commerce and started Lytle's efforts to have a water and disposal system.

In 1951, W.C. Loessberg, a local eduator who became the school's superintendent, gathered volunteers and got incorporation, the vote being 88 for and 75 against. The population rose to 800 in the 1960s. The number of businesses during that time varied from a low of fifteen to a high of thirty-two. In 1990 the population was 2,255.