The Mortlake branch line diverged from the main Geelong - Warrnambool railway on the down side of Terang station. It was 13 miles in length and was unusual in having only two intermediate stations along it's length, with Terang Racecourse station being located just beyond the main line junction. Mortlake was 150 miles from Melbourne by rail.
The idea for a railway serving Mortlake was first brought forward in the 1870s as part of the 'Battle of Coloured Lines' proposals for servicing the western district based on Hamilton. Mortlake was to be located on the 'Black' line via Geelong, Colac, Terang, Hexham and Penshurst. The lower cost 'Pink' line was eventually built, running from Ballarat to Ararat, Marooona and Dunkeld.
The branch from Terang to Mortlake was authorised under the Railway Construction act of 1884, also known as the "Octopus Act" for the large number of lines authorised. Other new lines in the area authorised under the same act were the Camperdown - Warrnambool extension, and the Timbooon and Forrest lines.
The main line from Terang from Camperdown was opened in April 1887, with the contract for the branch line signed by Bloomfield Brothers in May 1888 for the cost of 31,316 pounds. The same firm also built the line to Warrnambool. A 5'3" tramway was built to a quarry at Mt Shadwell to transport scoria for ballast.
A 0-6-0 Beyer-Peacock tender locomotive was acquired to assist in building the line. Named 'Adelaide' it was similar to the Victorian Railway's 'R' class of the same period. It was also used to construct the Timboon line, until sold to the VR in 1893 for 1400 pounds, and renumbered R11.
Completed some time before the official opening, the Mortlake Despatch of 1889 ran an article asking why the line had not yet been opened. A number of special trains had been run for local residents, who rode in open ballast wagons.
The line was officially opened on February 4, 1890 at the same time as the lines to Warrnambool and Port Fairy. Additional facilities were provided soon after, a windmill, 10 ton weighbridge and stockyards provided at Mortlake in 1891.
On opening of the line two passenger services a day were provided, with the trip taking around 30 minutes. By 1901 it was reduced to one mixed train each way per day, originating at Mortlake. The passenger service was withdrawn on September4 13, 1931.
Race specials ran to Terang Racecourse station from the opening of the line, especially for the racing club's New Years Day race meet. The last race trains were in 1941.
By 1962 goods trains ran on Saturday and Tuesdays running as required from Camperdown. By 1966 it was altered to a regular Tuesday train, and trains as required on Saturday and Friday. This remained in place until closure.
The last regular steam locomotive to use the line was K176 in September 1967, and the last train before closure was Y117 leading a Australian Railway Exploration Association charter on July 29, 1978.