Horseshoe Bay is a city in Llano and Burnet counties in the U.S. state of Texas. Situated on Lake Lyndon B. Johnson and the south branch of the Colorado River, it is known in the region for its drag boat racing and other water sports. Prior to its incorporation in September 2005, it was a census-designated place (CDP). The CDP population was 3,337 at the 2000 census. The 2010 census put the population at 3,418.