Palacios is a city in Matagorda County, Texas, United States. The population was 5,153 at the 2000 census.Palacios is home to the Palacios Beacon, a weekly newspaper established in 1907. It also serves nearby smaller communities such as Collegeport, Blessing, Midfield, Markham, El Maton, Carancahua, Deutschburg, and Cape Carancahua. Popular local legend states that the area was named Tres Palacios ("Three Palaces") several centuries ago by shipwrecked Spanish sailors who claimed they saw a vision of three palaces on the bay. Historians believe it was more likely named for Jose Felix Trespalacios, an Early Mexican governor of Texas.