The flat, fertile land on which Dawson was eventually built was originally part of a 368 acre tract of land called Prospect, settled in the late 1780s by John Smilie. Smilie was a prominent political figure who helped frame state and national constitutions and served in the United States Congress. The Smilies operated a sawmill west of the present borough line near Smilie Run They established a noted boat building center where flatboats were made for conveying sand, stone, iron, and cinders from this part of Fayette County down the Youghiogheny River to markets at Pittsburgh and beyond. John Smilie died in 1812 and passed the property to his son, Robert.
In 1852, James P. Smilie, son of Robert, sold 61 acres, in which the majority of the present district lies, to George Dawson of Brownsville. Alfred Howell, son-in-law of George Dawson subsequently became the owner of the land on which Dawson stands by marrying Dawson's daughter. Howell surveyed the land and laid out 28 lots in 1866. In 1871 eighty additional lots were planned for a total of 108. Most of these 108 lots are included in the present historic district boundaries. By 1872, the 108 lots were incorporated as Dawson Borough. As the town continued to grow, additional houses, stores, and a hotel were built.
By the 1880s the coke industry was thriving, with Fayette County dominating the industry in the national market. According to Sarah Heald, editor of Fayette County: An Inventory of Historic Engineering and Industrial Sites, during this period Fayette County was home to 14 coke works and 4,188 coke ovens The Cochran family's Washington Coal and Coke Company opened three mines and a coke works, as well as establishing the patch town of Star Junction about six miles from Dawson. The effects of coal and coke in conjunction with the expansion of the rail yards at nearby Dickerson Run to transport the products lead the population of Dawson to increase from 453 in 1880 to 668 by 1890.
Dawson soon emerged as a local center for middle and managerial class industrial workers associated with coal, coke, and related industries. Several firms operated nearby mines and had home offices in Dawson at the National Bank Building including Washington Coal and Coke Company, Juniata Coke Company, J. R. Laughery and Sons, Brown and Cochran, and James Cochran and Sons. A number of miners and other members of the working class also lived in Dawson. The Cochran family, with farming origins in nearby Upper Tyrone Township prior to the development of Dawson, were among the most prominent families in the area. Although the Cochran family alone did not create Dawson, and although they were not its only enterprising citizens, the subsequent wealth they amassed in developing the Washington Coal and Coke Company, was responsible for a number of buildings in town. The Cochrans were a very civic-minded family and became the benefactors of the town.
Dawson reached its pinnacle of coal and coke prominence between the years of 1890-1910. In Fowler's the turn-of-the-century Bird's Eye view, Dawson is depicted as a densely settled community of five churches, a school, an opera house, three hotels, a doctor, dentist, as well as a fruit store, general store, meat market, and bakery. By 1910 the population of Dawson peaked at 1,800 people. Many of these people were drawn to the area by the employment opportunities in the mines and coke works surrounding Dawson as well as management level jobs in coal and coke companies.
After this period prosperity, some of the surrounding local mines and adjacent coke ovens begin to close since their coal supplies were depleted. By 1920, Dawson's population dropped to 956. Employment remained high in the area through the 1920s despite continued advances in technology and less need for manual labor. According Heald, by the close of the First World War, 60% of the coke in the United States was made in by-product ovens. Heald also reveals that the number of beehive ovens fell from 93,901 in 1906 to 63,957 in 1922. A national coal strike in 1922 also foreshadowed the industry's demise. Locally, the early 1930s saw to sale of the Cochran-owned Washington Coal and Coke Company to H. C. Frick.
The gradual shift from beehive ovens to rectangular ovens and finally by-product ovens built on the site of the steel mills in Pittsburgh was the primary reason for the end of the coal and coke era. Heald's work states that the advantage of rectangular ovens over the beehive ovens was that rectangular ovens allowed for recovery of coal gases during the coking process. The H. C. Frick Company, the largest owner of ovens and part of the larger steel-oriented United States Steel, was not building rectangular ovens in Fayette County since it had already built a bank of by-product ovens adjacent to the United States Steel Plant in Clairton in 1916. Eventually, the by-product oven superseded both the beehive and rectangular oven. The change from coking the coal on-site to shipping it to by-product ovens near plants in Pittsburgh was the final blow to the industry. The coal mines in Fayette County typically remained open until the coal was depleted, regardless of conversion to rectangular or by-product ovens.
Following this, Dawson slowly became an insular village, one of many small, isolated communities in the Youghiogheny Valley. The community's workforce began commuting to jobs farther away. Workers found employment in the Pittsburgh area steel mills, large by-product coke works near Pittsburgh, and in retail and service establishments in the larger surrounding towns. Most of the Connellsville Coke region had been exhausted by 1950. By the 1980s, Dawson experienced its portion of regional economic trauma as many large industries shut down in the Pittsburgh area. Younger workers left the area in search of employment, while others accepted lower paying jobs in service industries. According to census records, Dawson's population has since fallen to 536, less than one third of its early twentieth century peak.