The Pacific Railroad Act of 1862 began the practice of granting federal government owned lands directly to corporations; before that act, land grants were made to the states, for the benefit of corporations.

It was based largely on a proposed bill originally reported six years earlier on August 16, 1856, to the 34th Congress by the Select Committee on the Pacific Railroad and Telegraph.

[1] Signed into law by President Abraham Lincoln on July 1, 1862, the 1862 Act authorized extensive land grants[2] in the Western United States and the issuance of 30-year government bonds (at 6 percent) to the Union Pacific Railroad and Central Pacific Railroad (later the Southern Pacific Railroad) companies in order to construct a continuous transcontinental railroad between the eastern side of the Missouri River at Council Bluffs, Iowa (opposite from Omaha, Nebraska)[3][4] and the navigable waters of the Sacramento River in Sacramento, California.

[5] Section 2 of the Act granted each Company contiguous rights of way for their rail lines as well as all public lands within 100 feet (30 m) on either side of the track.

[7] The U.S. Government Pacific Railroad Bonds were authorized by Section 5 to be issued to the companies at the rate of $16,000 per mile of tracked grade completed west of the designated base of the Sierra Nevadas and east of the designated base of the Rocky Mountains (UPRR).

The liens covered the railroads and all their fixtures, and all the loans were repaid in full (and with interest) by the companies as and when they became due.

Lands closest to the tracks drew the highest prices, because farmers and ranchers wanted to locate near railway stations.