In 1866, Robert Towns, entrepreneur and businessman agreed to provide financial assistance to the new settlement. Although he only visited Townsville briefly, the settlement was named Townsville in his honour. Towns died in 1873. A memorial to him is located at the top of Castle Hill.
Townsville was declared a municipality in February 1866, with John Melton Black elected first Mayor of the new municipality. It was also the year the first steamship arrived in the port.
A boiling down works was established at Hermit Park, sugar plantations were established at Hyde Park and Hermit Park, and a cotton plantation was established at Railway Estate.
The first newspaper, the Cleveland Bay Herald, was distributed on 3 March 1866 and in the same year, the West End Cemetery was established. It operated as Townsville's General Cemetery until 1902.
By 1868, Townsville was the major port and service centre for the Cape River, Gilbert, Ravenswood, Etheridge and Charters Towers goldfields. The pastoral industry extended further to the west, and the sugar industry expanded in coastal towns both north and south of Townsville. By the end of 1867, Townsville’s population was approximately 300 people.
In 1869, the National School opened in North Ward. It was located near the Leichhardt Street and Eyre Street roundabout.
In 1873, increased maritime activities prompted an attempt to develop the western side of Ross Creek seawards along the line of the present breakwater. When the attempt failed the Government stepped in to improve existing harbour facilities.
The first mail steamer arrived via Torres Strait.
In 1873, James Burns set up a mercantile business in Townsville. When he went into partnership with Robert Philp the manager of his Townsville operations in 1877 the business became Burns Philp and Company.
From 1868 to 1872, Townsville's population grew to around 2000 people.