It was built by Austria-Hungary from 1900 to 1906 as a part of a new strategic railway, the Neue Alpenbahnen, that would connect Western Austria and Southern Germany with the then Austro-Hungarian port of Trieste.

Because of new political divisions in Europe, with the dissolution of Austria-Hungary into separate states in 1918 and the isolation of communist Yugoslavia after 1945, the railway decreased in importance during the twentieth century.

However, Slovenia's accession to the European Union has created new prospects for the railway as a convenient passenger and freight route from Central and Eastern Europe to the port of Trieste.

In 1869, the Trieste Chamber of Commerce had sent a petition to the Emperor Franz Joseph, in which they argued that the opening that year of the Suez Canal would indubitably lead to further development of Trieste, the main port of the Austro-Hungarian Empire; therefore, a second railway line to Vienna or the northern parts of Austria would be needed to support increased maritime traffic, in addition to the existing Austrian Southern Railway.

In 1905, both Minister Wittek and Wurmb were subjected to criticism in parliament regarding cost overruns incurred by the construction because of geological difficulties.

Construction of the section between Podbrdo and Grahovo was the most demanding: eight bridges, thirty-three culverts, and six tunnels had to be built because of avalanche slopes and watery terrain.

The accession of Slovenia and other states to the European Union in 2004 and to the Schengen area at the end of 2007 significantly increased rail traffic from large parts of Europe to the ports of Trieste and Koper, which are conveniently located especially for the Czech Republic, southern Germany, Slovakia, Austria, and Hungary, by abolishing border controls.