The Tallulah Falls Railroad's predecessor, The Blue Ridge & Atlantic Railroad, was sold under foreclosure in 1897. The Tallulah Falls Railroad was organized the next year to take over its properties. With the financial backing of the Southern Railway, the new owners extended the line to Clayton, GA in 1904, to North Carolina in 1906, and then to Franklin in 1907. The result was a 58-mile line from Cornelia, GA to Franklin, NC.
Around the time that the railroad was under construction north of Clayton, the Southern was considering a grander plan, one which would incorporate the Tallulah Falls Railroad and several other existing lines into a new route over the Appalachians to Knoxville, Tennessee. If constructed, the railroad would have continued from Franklin down the Little Tennessee River valley to Southern's Murphy Branch (Asheville-to-Murphy, N.C.) near Almond. From there, trains could proceed a few miles to Bushnell where the Tennessee & Carolina Southern branched off and followed the river 14 miles to Fontana. From Fontana, new tracks would be built alongside the Little Tennessee to Calderwood, where they would join existing lines to Maryville and Knoxville. The plan was never implemented.
In 1917 the Tallulah Falls Railroad reported operating 58 miles of rail line between Cornelia and Franklin with 5.72 miles of sidings. The list of equipment reported included 5 locomotives, 10 passenger cars, 46 freight cars, and 6 service cars. The Railroad's nickname was the Rabun Gap Route. (Although some local people jokingly called it the "Total Failure.")
Passenger service, sparsely patronized since the 1920s, ended in 1946. Debt continued to mount, exceeding $5 million by 1961. The railroad was "dieselized" in 1948 when a stable of venerable, mostly Baldwin steamers, were replaced with two small boxy utilitarian GE 70-ton road switchers. This removed much of the remaining romance from the mountain line, but reduced locomotive-related operating expenses from $90/day to approximately $20/day. A self-powered diesel-electric unit continued to be used as a Railway Post Office and Railway Express Agency facility into the 1950s, presumably until mail service on the railroad ceased in 1954. Despite efforts to save the line, the last freight train ran on March 25, 1961. A short section from Cornelia to Demorest remained in operation for several years longer, but was abandoned sometime before 1985.
The Tallulah Falls Railroad gained popularity as a movie location in the 1950s, appearing in the opening scene of the 1951 drama I'd Climb the Highest Mountain. Later, in 1955, Walt Disney selected the railway as the location of principal photography for The Great Locomotive Chase. The rural location of the track closely resembled the setting of the actual chase, which occurred nearly 100 years earlier in the town of Kennesaw, Georgia. A number of locals were recruited as extras and even given minor speaking parts, including the then mayor of Clayton.