The earliest known human inhabitants of what is now Delray Beach were the Jaega people.[9] Tequesta Indians likely passed through or inhabited the area at various times. Few other recorded details of these local indigenous settlements have survived. An 1841 U.S. military map shows a Seminole camp located in the area now known as Lake Ida. In 1876, the United States Life Saving Service built the Orange Grove House of Refuge to rescue and shelter ship-wrecked sailors. The house derived its name from the grove of mature sour orange and other tropical fruit trees found at the site chosen for the house of refuge, but no record or evidence of who planted the trees was discovered.

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The first non-indigenous group to build a settlement was a party of African Americans from the panhandle of Florida, who purchased land a little inland from the Orange Grove House of Refuge and began farming around 1884. By 1894, the black community was large enough to establish the first school in the area. In 1894, William S. Linton, a Republican U.S. Congressman for Saginaw, Michigan, bought a tract of land west of the Orange Grove House of Refuge, and began selling plots in what he hoped would become a farming community. This community was named after Linton. In 1896, Henry Flagler extended his Florida East Coast Railroad south from West Palm Beach to Miami, with a station at Linton.

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The Linton settlers established a post office and a store, and began to achieve success with truck farming of winter vegetables for the northern market. A hard freeze in 1898 was a setback, and many of the settlers left, including William Linton.[12] Partly in an attempt to change the community's luck, or to leave behind a bad reputation, the settlement's name was changed in 1901 to Delray, after the Detroit neighborhood of Delray ("Delray" being the anglicized spelling of Del Rey, which is Spanish for "of the king"), which in turn was named after the Mexican–American War's Battle of Molino del Rey.

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Settlers from The Bahamas (then part of the British West Indies), sometimes referred to as Nassaws, began arriving in the early 1900s.[13] After 1905, newspaper articles and photographs of Delray events reveal that Japanese settlers from the nearby Yamato farming colony also began participating in Delray civic activities such as parades, going to the movies, and shopping. The 1910 census shows Delray as a town of 904 citizens. Twenty-four U.S. states and nine other countries are listed as the birthplace of its residents. Although still a small town, Delray had a diverse citizenry.

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In 1911, the area was chartered by the State of Florida as an incorporated town. In the same year, pineapple and tomato canning plants were built. Pineapples became the primary crop of the area. This is reflected in the name of the present day Pineapple Grove neighborhood near downtown Delray Beach. Prior to 1909, the Delray settlement land was within Dade County. That year, Palm Beach County was carved out of the northern portion of the region. In 1915, Palm Beach County and Dade County contributed nearly equal portions of land to create what is now Broward County between the two, leaving Delray situated within the southeastern portion of Palm Beach County.

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By 1920, Delray's population had reached 1,051. In the 1920s, drainage of the Everglades west of Delray lowered the water table, making it harder to grow pineapples, while the extension of the Florida East Coast Railway to Key West resulted in competition from Cuban pineapples for the markets of the northern United States.The Florida land boom of the 1920s brought renewed prosperity to Delray. Tourism and real estate speculation became important parts of the local economy. Delray issued bonds to raise money to install water and sewer lines, paved streets, and sidewalks. Several hotels were built. At that time, Delray was the largest town on the east coast of Florida between West Palm Beach and Fort Lauderdale. The collapse of the land boom in 1926 left Delray saddled with high bond debts, and greatly reduced income from property taxes. Delray was separated from the Atlantic Ocean beach by the Florida East Coast Canal (now part of the Intracoastal Waterway). In 1923, the area between the canal and the ocean was incorporated as Delray Beach. In 1927 Delray and Delray Beach merged into one town named Delray Beach.