Iola is believed to have been named for Edward Ariola, one of Stephen F. Austin's colonists who settled in the vicinity in 1836. In 1852 the community's first church, Zion Methodist, was constructed; the building also served as a schoolhouse. The settlement's first gristmill, Monroe's Gin, began operating during the 1860s. The post office opened in 1871 and, though discontinued the next year, was permanently reestablished in 1877. A Masonic Lodge was formed in 1876. By the 1880s the town had several churches, cotton gins, and gristmills. The population stood at 109 by 1890.