The village is located in the Rocky Mountains about 7 miles (11 km) south of the Colorado-New Mexico border.

According to the United States Census Bureau, the village has a total area of 2.6 square miles (6.7 km2), all of it land.

In 1880 the Denver & Rio Grande Railroad began construction of its San Juan Extension from Antonito, Colorado westward toward a mining district in the northern San Juan Basin of Colorado.

The railroad needed an engine terminal for helper locomotives, near to the western foot of the steep gradient toward Cumbres Pass.

[5] The northern valley of the Rio Chama had extensive coniferous forest, with dense stands of Ponderosa pine.

This is the remaining 64 mile portion of the Denver & Rio Grande's San Juan Extension between Alamosa, and Durango, Colorado.

[10] Chama has been featured in several films, including The Good Guys and the Bad Guys (1969) The Cowboys (1972), Bite the Bullett (1975), The Ballad of Gregorio Cortez (1982), Butch and Sundance: The Early Days (1989), Indiana Jones and the Last Crusade (1989), Wyatt Earp (1994), Wild Wild West (1999), All the Pretty Horses, (2000), Appaloosa (2008), A Million Ways to Die in the West (2014), Godless (2016), and Hostiles (2017).