The Platte River played a significant role in the early development of Phelps County. The Oregon Trail and Pony Express route passed along the south bank of the river and brought many travelers and freight shipments through the area in the mid 1800s. Soil conditions found in this area prompted many to homestead here. One of those was Moses Sydenham, who maintained a ranch and post office he called Hopeville in what today is the northeast corner of the county.

Like other locales in this part of the territory, the area was not without conflicts between Native Americans and settlers. While these attacks forced many settlers to leave, Sydenham resisted. He took his family to an island on the Platte River, then returned to Hopeville and hoisted a Union flag to give the impression that soldiers where stationed there. Hopeville was never attacked.

Within a few years the settlers returned to the area. By 1873 the area's population prompted Gov. Robert W. Furnas to proclaim a special election to organize the county and elect officials. The county was named Phelps, after former Mississippi Riverboat Captain William Phelps, who it is said settled in the area. Williamsburg, in the northwest corner of the county, became the county seat.

In 1878 the first in a series of fights took place to relocate the county seat. Phelps Center, in the heart of the county, and Sacramento, in the southeast corner, brought the question to a vote of the people. Neither location garnered enough votes. In an election the following year, Phelps Center was victorious.

When a railroad branch line passed through the county, the "Magic City of the Plains" sprung up along the line. Named in honor of George Holdrege, the construction superintendent for the railroad, it too entered the contest to become county seat. After local businessmen took it upon themselves to build a courthouse, county voters agreed in 1884 that the county offices should be moved from Phelps Center to Holdrege.