Beginning in the 1850s, the first settlers began receiving land grants for Preston Hollow’s land. Among them were the Lively family on Guersney Lane, the Howell family, and the Meaders family. Other smaller farms, like the dairy farm at 6303 Meadow, were also in Preston Hollow. 
In the 1920s, the first people started moving to Preston Hollow for residential purposes. Ralph Stichter was the first, purchasing many acres at the north east corner of Preston and Walnut Hill. He built two estates on his property, one right at the corner and another at what is now 6126 Lakehurst, which still stands, in 1922.
That same year, real estate developer Ira P. DeLoache first noticed the area. In 1924, DeLoache bought a 56-acre (23 ha) farm; Preston Hollow’s first lots were carved out of the former farm parcels. He built his real estate office at what is now Ebby’s Little White House in 1926. DeLoache and Al Joyce developed Preston Hollow, with development mainly occurring in the 1930s. Famous Pre-War architect Charles Dilbeck designed many monumental homes throughout the neighborhood in the 1930s and early 1940s. At first, Preston Road was the area’s only connection to Downtown Dallas. Terry Box of The Dallas Morning News said that the Northwest Highway “was nothing more than muddy right of way.” The area that would later become Preston Center was a dairy farm in the early to mid-20th Century.
The developers intended Preston Hollow to be what Box said was “more than a flatland suburb on the fringes of a new and growing Dallas.” Doctors, entrepreneurs, industrialists, lawyers, and oil businesspeople moved to Preston Hollow. Many built country-style estates that housed horses and stables. A private school which later became St. Mark’s School of Texas opened in the area.
In the early 1930s, during the Depression, Edward James Solon, the treasurer of a company called Interstate and the partner who came with Karl Hoblitzelle from Chicago to Dallas, purchased a Preston Hollow corner property at Douglas and Averill Way. DeLoache built a Dillbeck designed house on the property. This Tudor styled home was considered the beginning of the many large estates built in what is now termed the Old Preston Hollow area—an earlier large house in the area, by the pond near Avrill, was considered as part of the farm.
In the 1930s, moving beyond Northwest Highway was considered “going into the sticks” and risky in terms of attracting affluent homeowners. Later many people said that E.J. Solon’s estate started the North Dallas migration.
Preston Hollow was officially incorporated as a municipality in 1939, and DeLoache’s real estate office/Ebby’s Little White House turned into the town hall. 
Provisioned by the Preston Road Fresh Water Supply District, the North Dallas town of Preston Hollow was named for the dark wooded area with creeks and hollows extending westward from Preston Road.
In 1945 Preston Hollow residents voted to join the city of Dallas, and the municipality was annexed to Dallas shortly after that. That same year, the residents of Preston Hollow’s southern neighbor, University Park and its southern neighbor, Highland Park, (collectively, the Park Cities) voted to remain independent municipalities.
The book, Preston Hollow: A Brief History, covers the history of the neighborhood from the first settlers in the 1850s to the 2019 tornado. A neighborhood Facebook group called “Preston Hollow History” shares more historical information.
Despite a 1948 U. S. Supreme Court ruling that state courts cannot enforce race-based restrictions on the occupancy of real estate, a covenant was enacted in 1956 for 17 lots in the James Meaders Estates subdivision of Preston Hollow, which stated that only white residents were allowed to live on those lots unless they were “domestic servants of a different race or nationality in the employ of a tenant.” In July 2000 the residents repealed this restriction.
Teardowns of mid-20th Century ranch-style houses in portions of Preston Hollow began after land values increased in the 1980s.
In September 2008, Preston Hollow returned to national headlines when New York Post gossip columnist Cindy Adams wrote a column claiming that U.S. President George W. Bush and his wife Laura Bush had purchased a home in Preston Hollow. Described as “a big house on five acres,” Adams also claimed that this house would have “horse stables, lake views, mountain views, golf club views” and that Preston Hollow is “a town outside Dallas.” Dallas media pointed out the significant factual errors in the column (perhaps, most glaringly, Dallas’ location in the Great Plains region of Texas, where no mountains exist) and noted that the real estate agent cited denied both the report or that the Post had ever contacted her.