On March 9, 1826, the New York State Legislature passed an act establishing the Town of Fallsburg. The town was created from portions of the already existing towns of Thompson and Neversink and derived its name from the falls located in the town in the Neversink River. One month later, on April 4, the first town meeting was held in the schoolhouse where the hamlet of Fallsburg is today. The settlement was then known as Neversink Falls.
The Neversink River runs from north to south through the Town of Fallsburg and played an important part in its early development. In the late 1780's the valley above the falls in the Neversink River, between what is now Fallsburg and Hasbrouck, became known as having fertile and cheap land. This brought an influx of settlers from Ulster County. They came south from Wawarsing by way of the Chestnut Creek through Grahamsville as well as traveling north by way of Dennison's Ford. By 1800, the upper flats along the river were pretty well settled.