In 1868, James B. Mattingly, a freighter originally from Kentucky, established a sawmill on the banks of the Little Blue River.

Shortly thereafter, Woodford G. McDowell, a capitalist from Fairbury, Illinois, came to Nebraska to plat a town along the route of the St. Joseph and Denver City Railroad, which was to follow the Little Blue.

(The railroad was subsequently acquired by the Union Pacific and operated as the St. Joseph and Grand Island branch.)

[8] An 1879 fire, "supposed to have been the work of an incendiary",[9] destroyed an estimated fourteen buildings, for a loss of $50,000, much of it uninsured.

However, recovery was swift, and many of the destroyed frame buildings were replaced by more modern brick and stone structures.

The city lay at the junction of the Rock Island's north-south and east-west lines; because of this, it was designated the headquarters of the railroad's Western Division.

[4][11] The brick courthouse had survived the fire of 1879;[9] but soon thereafter, it proved too small to handle the county's increasing business and store its growing records.

In 1882, the county began renting the top two floors of the newly constructed Opera House, and moved its offices there; but this too was quickly outgrown.

In 1889, a $60,000 bond issue for the construction of a new courthouse passed; the new Romanesque Revival building was completed in 1892.

[12] Fairbury continued to prosper as the home of the Rock Island headquarters, which employed many locals directly and in supporting businesses.

[4][8] The decade from 1900 to 1910 saw the largest growth in Fairbury's history; the census of 1910 reported a population of 5,294, representing a sixty percent increase over the ten years.

[11] The city's commercial district underwent a considerable expansion, including two movie theaters and several large retail stores.

Beside the railroad, it had a variety of industries, including the Fairbury Windmill Company, with a payroll of 50 people in 1930.

The city continued to grow through the Depression,[4] despite the difficulties of the Rock Island, which went into receivership in 1933 and did not emerge until 1948.

[4] The conversion of the Rock Island to diesel locomotives, completed by 1952, rendered portions of the Fairbury yards obsolete.

The decrease in passenger railway traffic after World War II led to the reduction of service, the closing of stations, and the abandonment of track.

A 1979 strike, unsuccessfully mediated by President Jimmy Carter, was the final nail in the railroad's coffin.

[14] The railroad's routes were operated for 60 days by the Kansas City Terminal Railway, to allow shipping of the 1979 Midwestern harvest;[15] but in 1980, service to Fairbury ceased, and the depot was abandoned.

[16] According to the United States Census Bureau, the city has a total area of 2.40 square miles (6.22 km2), all land.

[17] With the decrease and eventual cessation of the Rock Island's activity, the population of Fairbury fell from its 1950 peak.

[16] It is also home to Livingston Enterprises, Inc., which is headquartered in Fairbury, and all of their sites are within a 30 mile radius of the town.

Other franchised business such as Dollar General, Orscheln Farm & Home, and Ace Hardware, have also located on the northeast.

It also has two radio stations, both owned by Flood Communications: KUTT-FM, broadcasting in a country music format at 100,000 watts; and KGMT-AM, playing oldies.