The 1880's had brought about a great change in Borneo. The British administrators who came to Borneo were adventure seekers, entering a country of unexplored forests and untapped resources. It was William Clarke Cowie, Managing Director of the British North Borneo Chartered Company who believed that the building of railways would pave the way for the opening up of land for commercial cultivation. He was responsible for initiating the building of the first railway in Sabah.
Construction started from Bukau to Beaufort and Weston in 1896.
An English civil engineer, Arthur J. West, was appointed to build the railway line from Bukau, north to Beaufort and south to Weston. However, upon completion of the railway in 1890, Weston was discovered to be too shallow for a deep-sea wharf. He came to a decision to extend the line northwards and his ambition to link the East and West remained only an ambition.
In 1903, Arthur J. West extended a 64 km line from Beaufort to Tenom, and to Melalap where labourers, mainly Hakka and Cantonese came from China to undertake what was known to be the most challenging task of construction along the gorge section. In the meantime the 90 km line from Beaufort to Jesselton (now Kota Kinabalu) was also constructed.
The line constructed for the intention of tapping the natural wealth of the interiors ran through land of rich resources and soon, land between Jesselton and Beaufort was cleared of forests for the cultivation of Paddy. Tobacco estates also sprang up around Tenom and sago mills appeared in Beaufort and Papar. Sugar, tapioca, silk, soya beans, pineapples and rice began to be hauled to the port at Jesselton for export. In 1903, A.J. West continued the laying of the 48 km Beaufort-Tenom rail which was completed two years later. The Tenom-Melalap rail was completed in 1906.
The North Borneo Railway was established on 1 August 1914 and things began to pick up in 1924. However, victory did not last long, for in 1930, the Great Depression spread throughout the world. This threw men out of work everywhere; trade was almost halted; there was no sale of rubber and established companies collapsed. Hardly had the world recovered from this when the Second World War started in 1939. The Japanese 37 Army, under Lt. General Masao Baba occupied North Borneo. WWII and the Japanese Occupation almost paralyzed the whole railway system between 1944 and 1945. Despite severe damages, the railways continued providing its vital service to the state during the war. Locomotives continued running between bridges and “Rail Jeeps” were modified to replace damaged locomotives.
During the Post-War period, immediately after liberation of North Borneo by the 9th Division Australian Imperial Force (AIF), the British North Borneo Company faced the gigantic task of reconstruction and decided to relinquish its ownership of North Borneo to the British Colonial Office. From then on, North Borneo became a Crown Colony until independence on 16th September 1963 when Malaysia was formed.
After Malaysia was formed, the North Borneo Railway assumed the name of the Sabah State Railway Department and several changes were again made to improve passenger and cargo facilities. By 1971, technological advancement in the form of diesel and petrol-powered locomotives replaced the steam engines. The railway celebrated its centennial anniversary in 1996 as the oldest form of transportation in the state.
On 22 January 2000, the North Borneo Railway was relaunched as a joint venture project between Sutera Harbour Resort and the Sabah State Railway Department, signifying a historical collaboration through common initiatives between the private sector and the state government.