Luella is located along State Highway 11 in central Grayson County, approximately four miles southeast of Sherman.

Besides freight, the railroad – also known as the Cotton Belt Line, ran a daily passenger trolley from Sherman (through Luella) to Commerce and back.

After Sherman began drilling several wells in the Luella area, rumors of an impending annexation spread throughout the community.

A movement to incorporate Luella was initiated and on April 11, 1978, an election was held to determine the community's future status.

As the years passed, however, the funds needed to properly run Luella weren't sufficient and road conditions in the town declined.

The lack of funds came to a head when school bus drivers who carried students from Luella to Tom Bean refused to cross Watkins Road Bridge due to its poor condition.

School district officials knew that if it rained during the day, it would be impossible to return the children to their homes without detouring a long way around.

Mayor Dolores Bernhardt introduced a proposed tax increase that would have provided the necessary funding to maintain the roads, but which did not guarantee any other services.