The community takes its name from the Gurley family, who settled in the area in 1817. The town gradually formed around a water and coaling stop of the Memphis & Charleston Railroad and was originally known as Gurley's Tank. In 1866, the post office opened, and the name was changed to Gurleysville; it was later shortened back to Gurley. Gurley was incorporated in 1891 with 250 residents. Soon after, the population peaked at 1,000. The business district was nearly destroyed by fire in 1923, when a bucket brigade was able to save only two businesses. Most of the town is now included in the Gurley Historic District, which was listed on the National Register of Historic Places in 2004.
As an incorporated town, Gurley has its own police and fire departments. The city also maintains a small sewer system. Education in Gurley is run by the Madison County School System. Only one K-8 school (Madison County Elementary) operates within the city limits, in the building formerly occupied by Madison County High School. A new Madison County High School was built a few miles west of the town on US 72 in 1999.