Okolona is said to have had its beginning six miles northwest of its present location when Littlebury Gilliam settled on the old stage route in 1836 and opened his house as a public inn. Gilliam became the founder of a settlement, which he named Prairie Mount. Over the next few years the focus of settlement in the area gradually shifted to the site of Okolona, where a community had begun to develop that was initially called Rose Hill. When a post office was established there, the name was changed to Okolona, reputedly based on a Chickasaw Indian name. (See History of Okolona)

The town was formally incorporated in 1850. Because of the depredations of the Civil War, only a few structures survive from the 1850s. Most notable among them is the Elliott Donaldson House, built in 1850. (It was individually listed on the National Register on 15 September 1980.) Several other residences are believed to date from about 1850. Okolona quickly became a trade center for Chickasaw County. Goods, especially cotton, were shipped from Okolona to far-away markets. The rich prairie soil surrounding the city was perfect for large-scale cotton production.

Baptist, Methodist, Episcopal, Presbyterian, and Christian church congregations had all been established in town by the end of the 1850s. The locations were later changed. When first built, three of them-Baptist, Methodist and Episcopal Churches-were located on the corners at the intersection of Main Street and Church Street, thus the naming of Church Street.