Palacios is a city in Matagorda County, Texas. Palacios is the second largest city in Matagorda County and is the Shrimp Capital of Texas. It is located right in the heart of the Texas Gulf Coast overlooking the beautiful Tres Palacios Bay. The place is a favorite for tourists from all over the country and is popular among birdwatchers for its variety of bird species. A wonderful beach area allows for sunbathing and swimming.