Settlement in the vicinity began as early as the mid-1800s, but no community formed at the site until about 1880. In 1885 J. R. Day donated two acres on the south bank of Iron Creek for a school. A small schoolhouse was erected there, and the community was named for the stand of cottonwood trees growing at the site. Eleven years later the school had one instructor and an enrollment of forty-eight. In 1894 the settlement acquired a post office and became known as Neal, after the family of postmaster John A. Heath's mother. In 1907 the post office was discontinued, and the community reverted to its former name. Around 1900 a syrup mill, a cotton gin, and a general store were in operation at the community. A two-room school building was constructed there in 1913, and shortly thereafter an interdenominational church. State Highway 21 was extended through the vicinity in the early 1930s. Enrollment at Cottonwood's seven-grade elementary school was twenty in 1936. By the late 1930s the community had two businesses and a population of fifty. In 1944 the Cottonwood school was consolidated with the Madisonville Independent School District. In 1945 Cottonwood's population was an estimated seventy, but by 1949 it had fallen to an estimated thirty-five. Thereafter its population remained virtually unchanged for more than four decades; it stood at an estimated forty in 1992, when the community had a church and a business, and remained the same in 2000. Source: Handbook of Texas Online.