Wordorigins.org

The state of Colorado takes its name from the Colorado River, literally red river, from the color of the muddy water. The name was applied by Spanish explorers in the 16th century. An earlier name for the river was Rio de Tison, or firebrand river. By 1540, the name Colorado was being applied to the territory now occupied by the US state.

(Sources: Illustrated Dictionary of Place Names; Webster’s Third New International Dictionary)