The site was originally owned by cattleman Daniel Waggoner and his son William Thomas Waggoner. In the 1870s outlaws Jesse and Frank James and Texas bandit Sam Bass hid from the law near the site.
In 1909, five years after the death of his father, W. T. Waggoner divided half of the family's ranch among his three children. In 1910 Electra Waggoner, W. T.'s daughter, sold her interest to J. L. Gamman and a syndicate of businessmen from Waxahachie and Dallas for $250,000. On the supposition that the land would be located along the route of a promised rail line between Decatur and Denton, Gamman and the syndicate laid out forty-six lots and constructed buildings, including a school. The lots sold quickly, and in 1911 the new community chose the name Allison in honor of E. M. Allison, Wise county judge from 1911 to 1915.
A general store, a blacksmith shop, and a church made Allison a community center for the corn and cotton farmers in the area. When the promised rail line did not materialize, however, the town failed.