The W&LLR was one of the few narrow gauge branch lines to be built under the provisions of the 1896 Light Railways Act. Noted narrow gauge promoter Everard Calthrop appeared at the Light Railway Inquiry, and proposed the use of transporter wagons. However the line ended up being built by the Cambrian Railways engineer, with consequent conservative 4-wheel wagon and other provisions.
It was opened on 4 April 1903 to aid economic development in a remote area, never making a profit. It was originally operated by the Cambrian Railways, connecting with it at the former Oswestry and Newtown Railway station in the town of Welshpool. The line is built through difficult country, having a great number of curves in order to reach the summit of 600 ft. The original terminus at Welshpool was located alongside the main line station and trains wound their way through the town, using the locomotive bell as a warning.
In the 1923 Grouping of railway companies, Cambrian Railways, including the Welshpool to Llanfair Caereinion line, was absorbed by the Great Western Railway (GWR). On 9 February 1931 the line lost its passenger service, which was replaced by a bus service, and it became a freight-only line. It was temporarily re-opened to passengers between 6 and 11 August 1945 for the Eisteddfod. The GWR itself was nationalised in 1948 and became part of British Railways.
Freight traffic lingered on until 1956, by which time British Railways decided to close the line, with services ceasing on 5 November.
A group of volunteers and enthusiasts took the line over and started raising money to restore it. On 6 April 1963 the western half of the line, from Llanfair Caereinion to Castle Caereinion, was reopened as a tourist railway. The line through Welshpool,however, could not be reopened, so the line now has a new terminus station at Raven Square on the western outskirts of the town, opened on 18 July 1981. There are current discussions about reinstating the link through the town to the main line station, following a different route from that originally used.
ex Chattenden and Upnor Railway (also known as the Lodge Hill & Upnor Railway), previously from Admiralty Depots, rebuilt at Llanfair in 1980. Has recently been rebuilt at Llanfair and is now fitted with both air and vacuum braking.