Colonel Raymond Pearson established the Spirit of 1776 Ranch on what would become Nassau Bay. In 1962, a community was planned which would be an exclusive residential and commercial area emphasizing its pioneers and at a then-staggering cost of $49 million. In 1962 construction of Nassau Bay began and the first residents moved to Nassau Bay in 1964; its initial population was 400. It was developed by Ernest W. Roe Company, with Thompson McCleary of Caudill, Rowlett, and Scott providing architectural services and Nassau Bay Development Associates establishing the development. The name was chosen by the developers because of the tropical feeling it generated. At the time, NASA was moving personnel from several areas in the United States with a high quality of life, including California and, notably, Florida.
In 1968 the community had 2,979 residents. The city incorporated in 1970. The population was 6,702 in 1980, 4,526 in 1982, 4,506 in 1991, and 4,170 in 2000