"In addition to creating hundreds of high-tech jobs for the Texas workforce, this site will inspire students, expand the supplier base and attract tourists to the South Texas area," Musk, 43, said in a statement.
Despite its white sand beaches, rich Texas history and subtropical climate, Brownsville has a reputation of being a sleepy border town that is usually only mentioned in national headlines when it comes to immigration issues and border violence.
Town officials know that Musk's announcement means those days are over.
"Our children's future just took a huge step forward, and our community is well on its way to becoming a vibrant and thriving community," Brownsville Commissioner Rose Gowen said.
Commissioner Jessica Tetreau-Kalifa said "Brownsville's destiny has changed."
Musk, a billionaire futurist who made his fortune from PayPal and electric automaker Tesla, is expected to pump an $85 million capital investment into the project and create more than 300 high-tech jobs.
The deal was sweetened with $15.3 million in incentives from the state of Texas.
It's a much-needed boost for the town of 180,000 where half the residents are employed in the government, education and health sectors, according to the Brownsville Economic Development Council.
The median household income in Brownsville is $31,605, which could spike with the creation of more science, technology, engineering and mathematics jobs.
Having its own facility will allow SpaceX greater control over the timing of its launches. Brownsville Mayor Tony Martinez said the first rocket from the facility could blast into space as early as 2016.
The Associated Press contributed to this report.