Jonestown was developed by brothers Warren and Emmet A. Jones in the 1930s when they recognized the opportunity presented by the upcoming Mansfield Dam on the Colorado River.

Once the dam was complete, Jonestown would become waterfront property along the Sandy Creek Arm and Big Devil's Hollow of the newly formed Lake Travis.

The Jones brothers initially sold waterfront lots for $50 in 1939, raising the price to $100 and offering financing after complaints the original cost was too high.

However, during this time the remote location also attracted "bike gangs, drug dealers and other ne'er-do-wells", according to a 1999 Austin American-Statesman article.

[7] Following incorporation, growth was initially rapid, with the 1988 population of 683 growing to 1,250 by 1990[5] but a regional real estate bust brought it to a halt circa 1990.

[7] In 1992, the community had a budget of just over US$310,000, a police force of two Travis County Sheriff's deputies, and a volunteer fire department, but did not provide any utilities.

By 1999, the city had 1,500 residents and the Lake North area of Travis County, which includes Jonestown, had seen a 62% rise in median home prices from US$84,500 to US$137,250 in the five-year period from 1994 to 1999.

[14] Additionally, the city both contains and is surrounded by a number of areas of publicly accessible, undeveloped forestland, much of it owned by the Lower Colorado River Authority.

[16] In the spring of 2008, FM 1431 had major re-engineering to straighten and widen the highway to support rapid growth along the North Shore of Lake Travis which RM 1431 serves.