The Intercolonial was constructed and operated by the government of Canada to fulfill its 1867 constitutional commitment to join the Maritime provinces to central Canada. The British government, anxious to unite the colonies and hopeful that new railway construction would restore the value of private Canadian railway bonds held by British investors, assisted in the project. While the Canadian government hoped a private company would take over operations of the railway, the Intercolonial remained publicly owned.
To meet the British government's desire that the railway be safe from American attack, and in order to connect existing population centres, the Intercolonial followed a circuitous route from Halifax or Saint John to Quebec City via the north shore of New Brunswick, through the Matapedia Valley, and then along the south shore of the St Lawrence. By 1900 the line had been extended west to Montreal and east to Sydney.
Between the completion of the railway in 1876 and 1914, a tenfold increase in freight and passenger traffic did not translate into financial success. The railway was never expected to pay its capital costs, but in 19 of its first 40 years operating expenses outstripped revenues. Critics at the time argued that government ownership was inherently inefficient. Defenders of the railway argued that the public railway granted unusually low freight rates to help promote economic development and trade between the regions. The Intercolonial disappeared as an independent entity between 1918 and 1923, as it was incorporated into the Canadian National Railways system.