After the end of the Civil War, the area of land now known as Derby was opened up for settlement. Under the Homestead Act of 1862, settlers could claim up to 160 acres of the public land. In spring of 1869, Alexander and Margaret Garrett became the first of many settlers to put down roots in the area of Spring Creek. The town of El Paso was established in July 1871 when John Hufbauer and J. Hout Minnich each decided to give close to 40 acres of land for the creation of a town. A majority of the settlers were farmers but early businesses in the area included a grain dealer, hotel, feed stable, post office, blacksmith, dry goods and grocer, and a doctor.
The name of the train depot was changed by the Santa Fe railroad from El Paso to Derby in the 1880s when the mail for El Paso, Kansas and El Paso, Texas kept getting mixed up. This was an unofficial change as the town was still listed as El Paso in the county records. When the town was incorporated as a third class city in June 1903, the petition had to be filed under El Paso and not Derby. The name was not officially changed until August 1956 after a petition of 978 legal voters was submitted to the county.