Lakeway is located at 30°21′55″N 97°58′34″W (30.365307, -97.976154), 16 miles (26 km) west of Austin.
According to Lakeway's GIS Analyst, the city has a total area of 13.37 square miles (21.51km), of which, 13.07 square miles (15.0 km2) of it is land and 0.3 square miles (0.7 km2) of it (4.45%) is water.
The town of Lakeway was founded on the site of a 2,700-acre ranch owned by Houston oilman and rancher Jack (Jake) Josey. In early 1962 three Houston business men associated with the Gulfmont Hotel Company-G. Flint Sawtelle, John H. Crooker, Jr., and Lee Blocker-obtained a sixty-day option to purchase the land and plan a hotel and resort community. The name Lakeway was a natural sequel to Gulfmont's Fairway Motor Hotel in McAllen, Texas, so named because it overlooked the fairway of a golf course. Construction of the hotel began in October 1962 and the grand opening was July 12, 1963. Around the same time the Lakeway Land Company was formed with Flint Sawtelle as president, for the development of real estate. In July 1974 a substantial majority of resident and nonresident property owners voted to incorporate with the consent of the city of Austin, and the 1,200-acre village of Lakeway resulted.