While the story is fictional, it's set in a real place: Sleepy Hollow, New York, which was called North Tarrytown at the time of the story's publication. The story also uses elements of Dutch folklore, like the Headless Horseman, which contribute to the tale's realism.
However, there is no historical evidence that the events of the story actually happened. The characters, the plot, and the Headless Horseman himself are all products of Irving's imagination.