Two of these branchline contractors, William Mackenzie and Donald Mann, took control of the bankrupt Lake Manitoba Railway and Canal Company in January, 1896. Mackenzie and Mann expanded their enterprise, in 1897, by building further north into Manitoba's Interlake district as well as east and west of Winnipeg. They also began building and buying lines south to connect the U.S. border at Pembina, North Dakota, and east to Ontario.
The Canadian Northern Railway was established, in 1899, and all railway companies owned by Mackenzie and Mann (primarily in Manitoba) were consolidated into the new entity. CNoR's first step toward competing directly with CPR came at the turn of the century with the decision to build a line linking the Prairie Provinces with Lake Superior at the harbour in Port Arthur-Fort William (modern Thunder Bay, Ontario) which would permit the shipping of western grain to European markets as well as the transport of eastern Canadian goods to the West. This line incorporated an existing CNoR line to Lake of the Woods and two local Ontario railways, the Port Arthur, Duluth and Western Railway and the Ontario and Rainy River Railway whose charters Mackenzie and Mann had acquired in 1897. To reach Port Arthur which became the lake terminus of the CNoR, the line extended south of Lake of the Woods into northern Minnesota before heading northeast through Rainy River District to the head of navigation on the Great Lakes. The Winnipeg-Port Arthur line was completed on December 30, 1901 with the last spike being driven just east of Atikokan station by Ontario's Commissioner of Crown Lands, Elihu J. Davis.
Throughout this time, Mackenzie and Mann had been busy expanding their prairie branch line network to feed the connection to Port Arthur. This network expanded in subsequent years to cover most parts of the prairies.
In 1914, the Canadian Northern Railway bought a 150 acre homestead north of Winnipeg on the shores of Lake Winnipeg. They purchased the land in order to develop a resort on Grand Beach.
In 1905, CNoR reached the newly formed provincial capital at Edmonton, Alberta. In 1908, a line was built east from a connection at Capreol, Ontario on the Toronto-Parry Sound line to Ottawa and on to Montreal. In 1910 a direct Toronto-Montreal line was built, as well as the start of construction on the line west of Edmonton through Yellowhead Pass to Vancouver, thanks to subsidies provided by the government of British Columbia. In 1911, federal funding was made available for construction of the line from Montreal-Ottawa-Capreol-Port Arthur.
In 1912, with GTR and CPR holding the ideal southern routes around Mount Royal to downtown Montreal, CNoR started building a double-tracked mainline north by building the Mount Royal Tunnel under the mountain.
The most infamous construction folly on the CNoR in British Columbia happened in 1913, when blasting for a passage for the railway at Hells Gate triggered an enormous landslide which partially blocked the narrow swift-flowing Fraser River. The resulting damage to Pacific salmon runs took decades to reverse by the governmental construction of fishways.
In addition to difficult construction between Jasper and Vancouver, CNoR started construction west of Edmonton in 1910, fully two years later than GTPR, which had started construction east from Prince Rupert in the Skeena River, leading to Yellowhead Pass.
CNoR was heavily indebted to banks and governments, and its profitable branchlines in the prairie provinces — "Canada's breadbasket" — would not generate enough revenue to cover construction costs in other areas. Unable to repay construction costs, the company requested financial aid. In exchange for funds, the federal government gained majority control of shares and CNoR was nationalized on September 6, 1918, when the directors of CNoR, including Mackenzie and Mann, resigned. The replacement board of directors appointed by the federal government forced CNoR to assume the management of federally owned Canadian Government Railways (CGR). On December 20, 1918, a Privy Council order directed CNoR and CGR to be managed under the moniker Canadian National Railway (CNR) as a means to simplify funding and operations, although CNoR and CGR would not be formally merged and cease corporate existence until January 20, 1923, the date that CNR was formally consolidated.
Significant portions of the old CNoR system survive under CN (as the CNR has been known since 1960); for example:
The majority of CN's former CNoR branchline network across Canada has either been abandoned or sold to shortline operators. An important U.S. subsidiary of CNoR, the Duluth, Winnipeg and Pacific Railway, forms part of a key CN connection between Chicago and Winnipeg.