Founded in 1909 by real estate developer O.D. Jarrell, along with E. C. Haeber, the town was settled at the intersection of an old stagecoach road and the Bartlett and Western Railway that was under construction. Soon after the railroad was completed, a saloon, two stores, a post office, and a bank were built. Because of the proximity of Jarrell to the railroad, the residents of nearby Corn Hill moved to the town. The city reached a population peak of 500 residents in 1914. The closing of the railway and the decline of the cotton industry, however, led to a long term recession. At one point, Jarrell had only 200 residents. After this low point, the city experienced a recovery that increased its population to 410 by 1990. Over 15 new businesses opened in Jarrell in 2009.
On May 27, 1997, the town suffered from the destructive F5 Jarrell Tornado, which destroyed the Double Creek Estates subdivision, killing 27.
The current Mayor of Jarrell is Dewey Hulme and the City Manager is Mel Yantis. City council meets on the 3rd Tuesday of each month at City Hall. Jarrell Emergency services are provided by the Jarrell Volunteer Fire Department operating under Williamson County ESD#5. The City hired Andres T. Gutierrez as the first Chief of Police. The Police department serves a growing population and maintains a very low crime rate.