In 1873 Horace A. Cowles, Civil War veteran, set up the Cyclone post office in his home one mile east and one mile south of present-day Shelby. A second post office, Arcade, was established on mile east of town in 1879; a year later it moved to the present location to be near the Omaha & Republican Valley Railroad, later the Union Pacific. Shelby was named after a railroad official.
Landowners Gilbert Van Vorce and Peter Matter gave the railroad half interest in their property to develop a trade center. Original streets retain their names: Walnut, Elm, Chestnut, Pine, Cherry, and Oak.
By the 1880s, the town had a drugstore, hardware store, hotel, boot and shoe shop, livery stable, bank, brick factory, and physician. The Shelby Sun newspaper was founded in 1889. Before 1900, Shelby had its own electric light plant. Telephone service arrived in 1903 and a water system in 1911. John Dunning and his father built radio station KGBY in 1926.
Shelby was home to well-known Nebraska artist Terence Duran, 1904-1968.