On the southward turn of the Texas Mexican Railway line, San Diego and its outlying area included ranching settlements that predated the incorporation of Texas into the United States in 1848. Spanish land grants were issued to the north and south of San Diego Creek in 1812, as colonizers traveled the historic Mier to Goliad road to settle the area in the first half of the nineteenth century.
Officially established in 1852, San Diego experienced significant growth after the Civil War when sheep ranching and the coming of the rail line in 1879 turned the town into an international wool-trading center. With the creation of Duval County in 1876 and San Diego selected as its seat, the town was surveyed, with the creek bordering the urban grid to its south and the courthouse square located to its north. An entire city block was reserved for a plaza, matching the Hispanic urban tradition found in nearby Benavides and Hebbronville, and denoting a majority population of Mexican descent at the time of its founding. Also similar to its neighbors, San Diego experienced a substantial oil boom in the 1920s that assured prosperity through the Great Depression and into the 1950s, when its energy-based fortunes and population growth began their decline.
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