Payson considers its founding year as 1882, at which time it was known as Green Valley or Union Park. On March 3, 1884 the town officially established a post office. Postmaster Frank C. Hise recommended that the town be named after a man named Louis Edwin Payson. Senator Payson was very instrumental in the establishment of the Post Office. In honor of Payson’s help, the town (or quite possibly merely Hise) decided to change the name to Payson.

Payson had its first rodeo in 1884, with Charlie Meadows being one of the founders. Payson considers its rodeo the "world's oldest continuous" as it has been held every year since.

In 1918 author Zane Grey made his first trip to the area surrounding Payson. He would come back with regularity through 1929, and would purchase two plots of land near Tonto Creek, including 120 acres from Sampson Elam Boles under Myrtle Point. Grey wrote numerous books about the area and also filmed some movies, such as To the Last Man, in the Payson area in the 1920s.

Also Payson, Flagstaff, Rim,Pine
 

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Neighboring communities include Star Valley and Pine. The smaller communities of Rye and Strawberry are also within Gila County.