In 1876, James Graham Fair, a Comstock Lode silver baron, bought the line and extended it into the Santa Cruz Mountains to capture the significant lumber traffic coming out of the redwood forests.

The narrow-gauge line was originally laid with 52-pound-per-yard (26 kg/m) rail on 8-foot (2.44 m) redwood ties;[1] and was later acquired by the Southern Pacific and converted to 4 ft 8+1⁄2 in (1,435 mm) standard gauge.

Railway shops were built in Newark and a 3 ft (914 mm) narrow gauge line to San Jose was completed in 1876.

Freight trains carried redwood lumber, mercury, sacked lime, gunpowder from the California Powder Works, and local agricultural produce.

The line through the Santa Cruz Mountains suffered major damage including a lateral slip of 5 feet (1.5 m) in the tunnel where it crossed the San Andreas Fault.

[2] 3 ft (914 mm) narrow gauge locomotives numbered 9, 23, and 26 were eventually acquired by the Ilwaco Railway and Navigation Company.

However, the southern end of the system from San Jose to Santa Cruz was reclassified as a branch line by 1915, useful only to lighter locomotives, as two or three were required to move trains over the grade.

Beginning in 1927, it was used by SP's Suntan Special seasonal excursion trains which came down the San Francisco Peninsula every summer Sunday and took passengers right to the Santa Cruz Beach Boardwalk.

[7] The Santa Cruz depot was used for SP's surviving coastal line from Watsonville Junction until the building was sold the 1970s and converted to a restaurant.

[8]: 102  It would take nearly two years and 30 lives to complete, as it crosses the San Andreas Fault and workers encountered oil and natural gas seepage which would explode.

[18] It was destroyed by a 5 ft (1.5 m) lateral shift following the 1906 San Francisco earthquake and had to be dug again; with the broad-gauge conversion, the work was not completed until March 1909.

As the other ferries wore out during World War II, Sacramento became one of two boats in active service until suffering a major mechanical failure on 28 November 1954.

[20]: 166, 207, 208 Bay City stayed on the Alameda route under Southern Pacific ownership, and survived collision with the lumber schooner Tampico on a foggy day in 1906.

She lost a rudder and had several lifeboats smashed on 5 April 1911 when misunderstood signals caused collision with the Southern Pacific ferry Berkeley.

On 8 July 1912, Bay City lost power when the engine main shaft broke, and drifted in the mid-bay until a tug arrived to tow her ashore.

The other ferry vacated the slip, but Garden City was unable to maneuver in the wind, and started drifting when its rudder broke while attempting to return to San Francisco.