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Route 263 connects Winsted with the smaller, historic village of Winchester Center, where exists a part of the 19th-century Old Waterbury Turnpike.
The Goshen endpoint at Route 272 is the only intersection in Connecticut of two state routes numbered in the 200s. (No two state routes in the 300s intersect at all.)
All of Route 263 was locally maintained until 1959, when the state created unsigned SR 863 along Winchester Road, Boyd Street and Lake Street, to connect Winchester Center to Winsted. Within two years, as a result of statewide highway reclassification, the state was planning to return SR 863 to the town.
Instead, local officials persuaded the state to retain SR 863, and extend it to Route 72 (now Route 272) in Goshen.
In a related matter, the state announced it would not be necessary to take over another local road, Smith Hill Road in the northern section of Winchester, which was once mulled as a possible extension to Route 182.
In 1963, SR 863 became Route 263, yet the road was not improved right away. In 1979, Winsted mayor Kingsley H. Beecher called Route 263 the most neglected highway in the state, and "in deplorable condition." Frost heaves and potholes vexed not only area residents, but firefighters as well, as the bumpy road caused them to drop equipment, boots and hats.
In 1998, the road was resurfaced along a 1.92-mile stretch leading to US 44.