Paxton started life in 1867 as "Alkali," a Union Pacific siding named for the area's alkaline soil, and was renamed and incorporated as a village in 1885 in honor of William A. Paxton, a large-scale Omaha rancher who had acquired extensive land in the area. Early development included Methodist (1886) and Catholic (1887) churches, a hotel, and a bank, and the town later benefited from the routing of the Lincoln Highway through it in the early 20th century.

Paxton is an incorporated village with a 2020 Census population of 516, down from 614 in 2000. Its ZIP code is 69155. The town's best-known landmark today is Ole's Big Game Steakhouse & Lounge, a restaurant/lounge famous for its extensive big-game trophy collection that draws travelers off Interstate 80; the economy otherwise rests on ranching and agriculture. Singer-songwriter Josh Rouse is a notable native.