The first European explorers to discover the canyon were members of the Coronado expedition, who visited the canyon in 1541. Apache Indians lived in Palo Duro at the time, but they were later displaced by Comanche and Kiowa tribes, who had the advantage of owning horses brought over by the Spanish. They had contact with traders in nearby New Mexico, called Comancheros.

A United States military team under Captain Randolph B. Marcy mapped the canyon in 1852 during their search for the headwaters of the Red River. The land remained under American Indian control until a military expedition led by Colonel Ranald S. Mackenzie was sent in 1874 to remove the Indians to reservations in Oklahoma. The Mackenzie expedition captured about 1,200 of the Indians' horses and destroyed them in nearby Tule Canyon. Demoralized and denied their main weapon and source of livelihood, the Comanche and Kiowa conceded and left the area.