On September 8-9, the Galveston Hurricane of 1900 savagely tore apart the city of Galveston, Texas. After the incident, investors were afraid of its location, and invested in Houston instead. The oil discovery at Spindletop in Beaumont, Texas in 1901 prompted a new industry to be developed in Texas; the oil trade would transform Houston, the raiload hub of east Texas, from a smaller town into a large city. In 1902, Theodore Roosevelt approved a one-million dollar fund for the Ship Channel. 1902 also saw the arrival of first Japanese Americans into Texas, after Sadatsuchi Uchida gave a fact-finding tour of the Gulf Coast region. This would establish rice as a major crop of the Gulf Coast area. With a large grant from Andrew Carnegie, the Houston Lyceum and Carnegie Library, later known as the Houston Public Library, was founded in 1904. By 1910, the population of Houston was larger than that of Galveston.

Mexicans displaced by the Mexican Revolution started flooding the city of Houston after 1910, and have been a heavy influence in the city ever since. In 1912, the Rice Institute (now Rice University) opened in the West University area. By 1913, twelve oil companies had located themselves in Houston. President Woodrow Wilson opened the Port of Houston in 1914, 74 years after the digging started. Service started with the Satilla, a ship that ran from Houston to New York, New York. World War I put the gasoline-combustible automobile into widespread use, causing oil to become a precious commodity. However, the war caused the amount of tonnage arriving in the Port to drop. After the war, the rice business fell flat, causing many Japanese-Americans to find other work or to move out of Texas.

In early 1917 the War Department ordered two military installations to be built in Harris County: Camp Logan and Ellington Field. The Army deployed a battalion of the all-black 24th Infantry Regiment to guard the construction site at Camp Logan, and racial tension in the city soon rose as the black soldiers received hostile treatment in the racially segregated city. Tensions flared into a full-blown riot in August 1917; the Houston race riot resulted in the deaths of 15 whites (including 4 policemen) and 4 black soldiers, and scores of additional injuries.