The City of Buda is located on Interstate Highway 35 - seventeen miles south of downtown Austin in northeastern Hays County. The City was formally established on April 1, 1881, when Cornelia Trimble donated land for a town site at an International-Great Northern Railroad depot there. Phillip J. Allen had settled the area, originally part of the Mexican land grant to Stephen B. von Eggleston, as early as 1846.

The first community center in this part of the county, Mountain City, developed before the Civil War, but it was rapidly depopulated as its residents and businesses flocked to the new rail depot, which took the name of Du Pre. Folklore has it that the name originated in 1880, when, as the railroad pushed into Hays County, the postmaster at Mountain City approached a railroad official and requested, "Do, pray, give us a depot." In 1887, at the request of the post office department, the name was changed to Buda. The Common explanation for the new name is that it derives from Spanish viuda, or widow. The town had gained a reputation as a popular eating stop for rail travelers, and the name may refer to a pair of widows who cooked at the Carrington Hotel in the 1880s.

The provisions of supplies and services to surrounding dairy farms and ranches was the basis of the local economy, and at different times the community supported mills, hotels, banks, a lumberyard, two newspapers, a cheese factory, a movie theatre, and a skating rink. In 1928 local businesses organized a Chamber of Commerce. Buda remained an active commercial center and railroad depot until the Great Depression.

In 1929 its population was estimated at 600, but by 1933 it fell to 300. Only in the mid-1980s, as the growth of Austin began to be felt in Buda, did its population once again approach pre-depression levels. The town was incorporated in 1948, and in 1967 Buda, Kyle, and Wimberley formed the Hays Consolidated Independent School District (only Buda and Kyle remained in the district after 1986). By the mid-1980s Buda had attracted a cement plant and some craft industry, but the community was still primarily rural and residential. Its population in 1990 was 1,795.