The station is most notable for its spiral rail line at this location, popularly known as the 'Demodara Loop'. The rail line passes under itself, going around the loop and emerging from a tunnel, which runs directly beneath the Demodara railway station. The rail loop is approximately 900 metres (3,000 ft) long and the tunnel is 320 m (1,050 ft) in length. It is considered the only loop in the world with a railway station situated exactly over a tunnel at spiral loop.
During the construction of the rail extension to Badulla the engineers and surveyors found that elevation between the hills at Demodara was too much for the track to negotiate, with the maximum inclination allowed by the Ceylon Government Railway being one foot per 44 feet (1/44), an innovative track design had to be devised. Local folklore has it that one of the engineers, Devapura Jayasena Wimalasurendra, was inspired after observing a Kankany (supervisor) in a local tea estate undo his Talappawa (turban) and re-tie it around his head.