The Peabody Memorial Library began as a single room in the Main Building (later called Old Main). The single-room library was named in honor of George Peabody, who endowed $2 million to Sam Houston Normal Institute through the Peabody Education Fund, which was created to develop and improve educational facilities in the South after the Civil War.

Due to overcrowding, $10,000 was raised through the Peabody Memorial Fund to build a separate library structure and on October 24, 1901, the cornerstone for the new Peabody Memorial Library was placed. Construction was completed in 1902 and Sam Houston Normal Institute became the first college to have a separate library building in Texas.

The library was designed in the Romanesque and colonial revival styles and was built in the shape of a cross. The exterior featured stained-glass windows similar to the Main Building's and the interior held a reading room with a fireplace and decorated arched ceiling, an office space, and a cloakroom. The office space was utilized by the president's office until 1916 when they moved to the Science Building (now the Bobby K. Marks Administration Building). The president's office still resides there to this day.

As the university grew, overcrowding once again became an issue. In 1930, the Estill Library opened, and all the functions of the Peabody Memorial Library moved to the new library.

From 1937 until 1952, the Peabody was home to the music department. The basement housed music rooms for classes and practice areas for the Sam Houston State Teachers College Band and the Houstonians.

In 1965, the Peabody underwent restoration.

The Peabody was threatened with demolition in 1981. However, the beloved Main Building, “Old Main,” was destroyed by a fire in 1982, resulting in a desire to preserve the Peabody for future generations. Further renovations took place in 1998-1999 (the building’s exterior) and in 1990-1991 (the building’s interior). The total cost of all renovations was over half a million dollars. Following the renewal, the building became a Texas Historic Landmark in 1990 through the efforts of the Historical Preservation Society. In October 1991, the Peabody Memorial Library was rededicated.

For General Sam Houston's 200th birthday in 1993, the Peabody was restored and rededicated again as the university's archival library and repository. In October 1998, the Peabody closed due to an outbreak of mold found within the archival collections resulting from humidity issues and leaks in the roof. As a result, the University Archives was temporarily moved to the Newton Gresham Library. In 2004, the University Archives permanently moved to the Newton Gresham Library's fourth floor.

In 2007, a 113-year-old organ was restored and moved to the Peabody, where it currently resides.

Since the University Archives moved to New Gresham Library in 2004, the Peabody only opens for special university events and meetings.