What is now the Texas State Railroad State Historical Park originated as an industrial railroad serving the iron foundry operated by the Texas prison system on the penitentiary grounds near Rusk. In 1896 the first five miles of track was built west from North Rusk to haul wood and iron ore to the smelter known as the "Old Alcalde" that had been built by the State in 1884. In 1903 the prison smelter was expanded and the railroad was extended five miles to the community of Maydelle. Governor Thomas M. Campbell conceived the idea that it would be profitable for the railroad to become a common carrier, and on April 5, 1907, the legislature approved his request to operate the railroad as a common carrier and to extend the line from Maydelle to Palestine. Regular service began on June 6, 1907, and the line to Palestine was put in service on April 15, 1909. The 22½ mile extension cost the state approximately $530,383. This gave the line a connection with the International and Great Northern Railway Company at Palestine, as well as a connection with the St. Louis Southwestern Railway Company of Texas and the Texas and New Orleans Railroad Company at Rusk. There were depots at Rusk, Palestine, and Maydelle, and the general business office, while initially at Rusk, was later moved to Palestine. Although the railroad was never chartered, it was officially named the Texas State Railroad. When opened it was controlled by the governor and the Prison Commission of the state of Texas. Convict labor was used to build the extension to Palestine just as it had been used to build the earlier sections between Rusk and Maydelle. Reformers complained about the mortality rates and working conditions that accompanied the construction of the road, describing it as "stained with the blood of some helpless convict man or boy lashed cruelly by a savage prison guard or sergeant."
Although the prison foundry was closed in 1913, the railroad continued to be marginally profitable as the connecting railroads allowed liberal provisions on through rates. In 1916 the road owned two locomotives, thirty-seven freight cars, and two passenger cars. Earnings that year included $3,656 in passenger revenue, $24,024 in freight revenue, and $1,149 in other revenue. However, by 1921 the railroad had run up a deficit of $366,902 and the line was facing abandonment. State Senator I. D. Fairchild convinced the legislature to have a committee of professional railroad men examine the property to determine if it could be operated profitably. Based on the committee's report, the legislature appropriated $150,000 to rehabilitate the railroad and appointed a board of governors to oversee the operation. On November 25, 1921, the Texas State was leased to the Texas and New Orleans. Traffic consisted primarily of forest products and, until the Great Depression, such farm products as tomatoes. The Texas and New Orleans also briefly operated Pullman service over the line from Dallas, as well as through cars from points in East Texas which connected with International-Great Northern trains at Palestine bound for St. Louis.
In 1962 the Southern Pacific, as successor to the Texas and New Orleans, declined to renew the lease of the Texas State. By that time the only major industries on the line were a bulk feed plant at Rusk and the Vernon Calhoun Packing Plant near Palestine, as well as some pulpwood loading. The railroad was then leased to the Texas South-Eastern Railroad Company between November 1, 1962, and December 31, 1969. After the Texas South-Eastern lease expired, the few miles from Palestine to the packing plant was leased to the Missouri Pacific Railroad Company. In early 1970 a tourist train known as the Cherokee and Southwestern Tourist Railroad Corporation attempted to operate a few miles out of Rusk. However, the operator was unable to overcome several serious problems and ran only a few trips. Once again the future of the Texas State looked bleak. In 1972 the Sixty-first Texas Legislature turned most of the railroad over to the Texas Parks and Wildlife Department for conversion to a hike and bike trail. However, a group of railroad enthusiasts implored the department to investigate operating a passenger train for tourists. The findings were favorable, and plans for the Texas State Railroad State Historical Park were formulated. Inmates of the Texas prison system were again used to rehabilitate the line, while steam locomotives and other equipment were located in various parts of the country. By 1977 the park was open, and the railroad currently operates two passenger trains pulled by restored steam locomotives out of both Rusk and Palestine. The park provides a rare opportunity for children and adults to learn more about railroads, and for those who have worked around railroads to enjoy themselves with coaches and locomotives from the early 1900s. In addition to its popularity with tourists, the Texas State has been featured in a number of television shows and movies. While most of the filming has been done on line, the equipment has also been moved to other locations. In early 1995, for example, a locomotive and some cars were used between Alpine and Presidio during the filming of Larry McMurtry's Streets of Laredo. In 2007 operation of the railroad was transferred from the Texas Parks and Wildlife Department to the Texas State Railroad Authority, and the line has since been leased to private operators.