A post office named Loretta was established May 7, 1898, but anticipating the railroad, the post office in 1901 moved and changed its name to Texhoma, said name referring to the community's location on the state line. Very few claims were filed on until the railroad was assured. The town grew quickly to a population near 1,000, serving as the closest railroad town to the people who lived as far north and west as present Boise City, and south into the Texas Panhandle to the present town of Gruver.

After a 1932 survey moved the border south by about 365 feet, most of the businesses in the Texhoma in Texas were moved into the Oklahoma.

Texhoma students in both Texas and Oklahoma are served jointly by an unusual bi-state arrangement. Kindergarten through fourth grade students are served by the Texhoma Independent School District in Texas, while fifth through twelfth grade students by Texhoma Public Schools in Oklahoma. It is the only city in Oklahoma where graduating students can attend either Oklahoma or Texas public universities at the in-state tuition rates for either.