Dillsboro was founded when the Murphy Branch Railroad came to the area in the 1880s. In 1882, the first post office in the area opened. Called the Tunnel Post Office, it was named after the nearby Cowee Tunnel. In 1882, the postmaster, William Allen Dills, built a large home on a hill overlooking the Tuckasegee River, later the home of C.J. Harris and now The Riverwood Shops. The unincorporated village was called Depot, New Webster, and Webster Station until the state legislature had its name officially changed to Dillsboro when the village was incorporated as a town in 1889 to honor William Allen Dills, the town's founder (another source names George W. Dill, an early settler.) One of the oldest buildings in the town dates to the 1870s, before the town was officially founded, now serving as a barber shop. The building is one floor and was built on Front Street when the town was largely farmland. In a relatively short time period, Dillsboro became a thriving town; by 1888, it was the most important town on the Murphy Branch of the Southern Railway in the areas of Industry, with two sawmills, two clay mines, a locust pin company, a corundum crushing plant, a chestnut pole yard, a chestnut corkwood yard, two livery stables, six general stores, a large hotel, and a shoemaker.