The proposed site in Farmersville, 40 miles (64 km) northeast of Dallas, was put forward by a local Islamic group.
Critics say they have concerns over Muslim burial procedures and fear it could lead to a mosque being built.
A spokesman for the Islamic Association of Collin County said misinformation and confusion is behind the opposition.
Farmersville already has a Buddhist centre and a Mormon church but residents turned up in force at a recent town meeting to oppose the Muslim cemetery.
The town is about 25 miles (40 km) away from where two Islamic extremists were shot dead after attacking an exhibition of cartoons of the Prophet Muhammad in May.
"The concern for us is the radical element of Islam," David Meeks, pastor at the Bethlehem Baptist Church, told The Dallas Morning News.
"They will expand. How can we stop a mosque or madrassa training centre from going in there?" he asked, referring to a type of Islamic school.
One resident told local TV network KTVT said he had health concerns over the burial practices, saying: "You don't know whether they were shot, diseased or anything else."
"All they do is wrap them in a sheet, throw them in the grave and bury them," Troy Gosnell told the news channel.
Some opponents had even threatened to cover the area in blood from pigs in a bid to stop the group from purchasing the land, according to local news site CBS DFW.
But officials said the sale of the land was completed last week.
Khalil Abdur-Rashid, a spokesman for the Islamic group, said they had been surprised by the opposition.
"We didn't think there would be this much concern about burying the dead," he said, explaining that bodies would be placed in caskets.
The cemetery was more to do with "human dignity" than religion, he added.
Mayor Joe Helmberger has insisted that residents' fears are unwarranted, saying: "There's just a basic concern or distrust about the cemetery coming into town."
He said the cemetery would be approved as long as the town's development standards are met, adding that the US was founded on religious freedom.
Residents in a small town in Texas are seeking to block plans to build an Islamic cemetery over fears it is part of a wider Muslim "takeover".