Goodhue began as a railroad town, which is probably the reason Goodhue survived when many of the other settlements started at this time did not. Construction on the railroad began in the summer of 1888 and was completed in May of 1889. The area where Goodhue is located became a center of activity as railroad workers, sometimes as many as 600, lived in barracks and tents. The first trip from Red Wing to Rochester was made May 7, 1889. After this there were four stops a day in Goodhue.
In 1889 T.B. Sheldon, prominent grain dealer and president of the Duluth, Red Wing and Southern Railroad, purchased 30 acres of land between two railroad stops and had it duly platted into blocks containing a total of 106 lots.
From 1889 when the village was platted until 1897 the village was governed by the township of Goodhue. In 1897 thirty-four villagers signed a petition asking for a vote to incorporate Goodhue as a village. On March 31, 1897, 28 voted to incorporate. The final separation of the Goodhue village from the jurisdiction of Goodhue Township occurred on May 31, 1897, when another election made Goodhue a separate election and tax assessment district.
When there was no longer any use for the railroad camps, there was still a mission for the little burg to perform, and from that time the place has always been regarded as an important trading post, keeping pace with the demands of a large and wealthy agricultural community which boards on every side.