The tunnel was constructed in 1900 by the Lahey brothers as part of a tramway to transport timber from the valleys to the south to their mill in Canungra. The Darlington Range through which the tunnel passes was a considerable obstacle for the line. Even with the tunnel, the line still climbed on an incredibly steep 1 in 12.5 grade out of Canungra. To tackle these grades, Laheys used Climax and Shay geared locomotives. South of Canungra today you will find Shay Drive and Climax Place. The descent into Canungra with a load of logs must have been nerve racking from the loco crew, and as a precaution, a runaway siding was constructed part way down.

Initially timber from Canungra was transported by road, but after much lobbying, a government railway opened to the town in 1915.

By the 1920 most the timber had been exhausted. Occasional trains continued to run until around 1930 and the line closed in 1935.