When complete, it will extend the Caltrain Peninsula Corridor commuter rail line from its current northern terminus at 4th and King via a 1.3-mile (2.1 km) tunnel.

The Caltrain Modernization Program (CalMod), which included electrification of the line and acquisition of electrified rolling stock, was a prerequisite, since the former diesel locomotives were not suitable for use in a tunnel.

[16] Once complete, the SF&SJ offered train service into San Francisco with a northern terminus at a now-demolished station at 18th and Valencia streets.

[18] Instead of moving the station closer to Market, SP built a new passenger terminal, the Third and Townsend Depot, at the same location in San Francisco in 1914, anticipating the need for increased capacity to handle visitors traveling to the 1915 Panama–Pacific International Exposition.

[19] Starting in 1909, SP purchased sixteen complete blocks in a direct line between the foot of Market and the existing Third and Townsend depot at a cost of $5 million (equivalent to $118 million in 2023),[20] and the San Francisco Call believed this meant a station uniting SP with the Santa Fe and Western Pacific near the San Francisco Ferry Building was imminent.

[23][24] The San Francisco Chronicle speculated that Third and Townsend could have been announced as a bargaining tactic to knock down the asking price of the few landowners remaining between the existing station and Market and Beale.

[23] However, other observers understood the 1914 Spanish Revival Depot at Third and Townsend was intended as a "temporary" structure since SP planned to extend service to downtown San Francisco at some point in the future,[25] as shown by the configuration of the new Southern Pacific General Office building at 1 Market Street.

[28] In 1955, the California Public Utilities Commission published a report to evaluate SP's Peninsula Commute service in the wake of a 1950 application to raise fares.

The report noted "While the Peninsula Service furnishes a rapid rail transportation, particularly during morning and evening peak periods, it does not carry passengers within reasonable walking distance of downtown San Francisco" and "a considerable portion of the commuter's total traveling time is spent in transit between the S. P. Depot and downtown San Francisco, and at an additional expense to the commuter of 30¢ a day."

[34] PERSUS noted the single largest destination, San Francisco's downtown Financial District, was not directly served by the SP Peninsula Commute and called the Townsend Street station "an obstacle to the [Central Business District]-destined commuter who must expend additional time and fares, and a deterrent to the off-peak rider who must contend with less frequent transit service or pedestrian hazards on the streets.

[34] The Transit Conversion would free casual riders from having to look up specific timetables and plan trips, obviating the need for a Peninsula BART extension, and it was projected to more than double ridership.

[41] During that hearing, Mr. Fred Barton, Deputy District Director of Rail Operations for Caltrans, noted "the existing passenger service provided by SP is not utilizing its full potential in serving the travel demands of the Peninsula residents who are employed in downtown San Francisco.

This inadequacy in service is mainly due to the location of the present SP terminal which is remote from the high density employment centers in the city's financial district.

In fact, an additional twenty to thirty minute travel time and a transfer to Muni bus service is required by the commuters in order to reach the financial district.

[43] As evidence, when Muni discontinued a dedicated shuttle service between 4th and Townsend and the Financial District, CalTrain ridership dropped by 18 percent, prompting Caltrans to declare a downtown extension should be implemented no later than 1991.

The 1987 Interim Upgrade Study called the downtown extension "the single most important improvement that can be made to the Peninsula commuter line at the present time."

In 1989, the Federal Transit Administration authorized a draft environmental impact report, which was completed in 1991 but never published or reviewed as the share of local funding for the terminal relocation never materialized.

[47] In December 1995, the Market and Beale site was dropped for consideration as City of San Francisco planners were considering that location for a bus station.

[54] In 2000, the City and County of San Francisco and the Peninsula Corridor Joint Powers Authority begin the environmental review process for the revived project.

[8] The first phase consists of the construction of the Transbay Transit Center, which contains a train box on its underground levels to accommodate Caltrain and high-speed rail.

[59] The suggested revisions included moving the alignment to the Mission Bay neighborhood in order to accommodate new housing development and the new Warriors stadium that was in planning at the time.

The trains would then bypass the existing terminus at Fourth and King, enabling the redevelopment of the Caltrain station and potential addition of infill housing.

[59] One of the goals of RAB was to propose grade separations for the surface rail segments, as the planned frequency of trains with the completion of CalMod and CAHSR meant that at-grade crossings at Mission Bay Drive and 16th Street could be blocked more than 1⁄3 of the time during peak commute hours.

[3][61] Alternative 1 would create underpasses four to five stories deep and more than 1⁄2 mi (0.80 km) long, reducing pedestrian mobility and leaving the roads vulnerable to sea level rise.

[60]: 12, 18  Alternative 3 would use potentially the largest tunnel boring machine in the United States for a single bore with stacked train tracks, and discards much of the route for DTX that had already received clearance; in addition, the effects on existing structures (such as the Lefty O'Doul Bridge and Oracle Park) would require further study, complicating the approval process and increasing engineering, cost, and environmental challenges.

[65] As of January 2023, the project's price tag had risen to $6.7 billion and its estimated completion date had slipped to 2032, while a planned pedestrian tunnel from the TTC to the Market Street subway's Embarcadero Station had been canceled.