The railway was incorporated in 1890 by David Eccles. The narrow gauge railway's purpose was to haul logs to the Oregon Lumber Company sawmill in South Baker City. The sawmill and railroad remained separate corporations of the same owners for the life of the railroad. The builders of the railway also owned the Grande Ronde Lumber Company in Perry, Oregon, and the railway was financed by Mormons in Utah. The line was built over terrain originally considered as part of a railway from Denver, Colorado to the Pacific coast; but the Union Pacific Railroad opted for a different route to avoid bypassing growing communities which might provide an attractive opportunity for competition by the rapidly growing Oregon Railroad and Navigation Company.