Early settler, David Mitchell established a trading post near here in the late 1840s, about the time colonist of W.S. Peters' empresario grant began to settle the area. Colonist William Balch, who settled on an area land grant in 1852, was later to become known as the "Father of Alvarado" for his efforts in having the town site surveyed in 1854 establishing the first general merchandise stores on the square, and for donating land for a cemetery, school and union church.
The town, named for Alvarado, Mexico, soon boasted a post office, homes, businesses, and churches. A community school established about 1855 became The Alvarado Masonic Institute in 1875. Rail lines extended through Alvarado by the Missouri Pacific Railroad in 1881 and by the Chicago, Texas and Mexican Central Railroad in 1884 spurred a local economic boom. By 1885 Alvarado had several churches, two schools, two gins, an opera house, a bank, a newspaper, and a population of about 2,000. The Masonic institute became the Alvarado Normal Institute in 1899 and Alvarado High School in 1908-1909.