It was originally a railway outpost on the original railway line across the Blue Mountains, but by 1908 when Clarence was used as headquarters for the Ten Tunnels Deviation works, the town population had flourished to over 5,000 residents, the majority being the navvies employed on the deviation works.

Narrow gauge track was laid on the alignment and several withdrawn ex-Q.R steam locomotives were imported for use on the Zig Zag tourist line.

Today, it is one of Australia's most well-known tourist lines and the original station at Clarence has since been restored for use as the terminus.

There is the nearby Clarence Colliery, opened in the 1970s, that was closed and then re-opened again.

It is served by a loop line that branches off Newnes Junction.