Originally called Collinsville, the town's name was changed to Benkelman in 1880 when J.G. Benkelman established one of the largest cattle shipping points next to the town.
At the end of the Civil War, Texas had no satisfactory market for its excess cattle. Speculators brought huge herds and moved them north for final fattening before shipping to Omaha, St. Joseph, Chicago, and Denver.
The Dundy County area was carpeted with thick buffalo grass and many varieties of tall grass which offered free grazing. Collinsville was an excellent shipping point, but the Nebraska embargo on Texas cattle, combined with the "Homestead Act" and the settlers it brought, resulted in the open range beginning to break up.
Early in 1882, the railroad built a depot and the town relocated north of the track. It was destined to become a flourishing town. In the south central part of the county at the junction of the north and south forks of the Republican River, and on the main line of the Burlington Railroad, it had great advantages. It became a shipping point for grain, livestock, and cream.
On February 8, 1887, the Village of Benkelman was incorporated. In 1888, Hiawatha, Ough, and Allston were putting up stiff competition with Benkelman for the county seat, but Benkelman didn't join directly in the controversy. Instead, it quietly built a courthouse and the county commissioners awarded the county seat to Benkelman soon after the courthouse was completed. Another courthouse replaced the original in 1918.
General Custer in Nebraska State Historical Marker, located near the viaduct south of Benkelman on Highway 34, marks the area where Gen. George Armstrong Custer commanding six companies of the 7th Cavalry camped June 22 to 30, 1867. As dawn broke June 24, Custer’s camp was attacked by a band of Sioux Indians, led by Pawnee Killer. The raiders wounded a sentry, parlayed with Custer and his officers, and rode away.
The Texas Trail Canyon State Historical Marker, located five miles east of Haigler, marks the canyon which served as a checkpoint for cattle which passed through this area as part of the cattle drives from Texas to Ogallala, Nebraska, in the late 1880s. It is said that 150,000 cattle were moved through here in 1886, the last year of the trail drives.