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The use of a third rail in model railroading is a technique that is sometimes applied in order to facilitate easier wiring.

2 rail system

Early toy trains used two metal rail tracks like most real trains. However, manufacturers quickly found that using a center rail for electric power and the two outer rails for common or ground made the track less prone to electrical short circuits. Thus most scales and gauges that predate HO scale use three rails for operation.

3 rail system

A key advantage for three-rail track is reverse loops, where a train enters a loop through a turnout and then exits through the same turnout in order to change the train's direction. With two-rail track, when the track reverses on itself, this causes a short circuit. With three-rail track, because the center rail remains constant and the outer rails are electrically identical, this causes no problems.

The third rail has also been used to automate and animate layouts. An accessory, such as a railway signal, can be wired to a section of track that has had one of its outer rails insulated, either at the factory or by a hobbyist. A passing train then activates the insulated rail, completing the circuit and causing the accessory to operate.

Insulated rails (or rail sections) can also be used to control turnouts, causing the turnout to switch to the position needed by an oncoming train.

Because of this feature, railroad cars intended for three-rail operation will not work on two-rail track unless their wheels are first insulated from each other. Cars intended for two-rail track will operate on three-rail track, but they will not activate controls wired to an insulated rail. Conversion of three-rail cars for two-rail operation, or vice-versa, is thus a common practice among hobbyists. It requires either replacing the bogies (wheel assemblies) on the car, or replacing metal axles with axles made of a non-conductive material.

The main disadvantage of three-rail track is its lack of realism. While some real-world trains do use a third rail, the prototypes for the majority of model railroad operations do not. Lionel tried to improve this situation in the late 1950s with its Super O track, which blackened the middle rail and made it thinner in order to make it less visible. Other O scale manufacturers use similar techniques today.

All insulated 3 rail system

Märklin uses a 'phantom' third rail, where the middle rail is concealed in the ties with only studs protruding, giving the advantages of three-rail operation without seriously detracting from its realism. This is stud contact electrification for model railways and is often used on garden railway systems. Garden railways often have a mixture of electrical and real steam locomotives. while it is possible, insulating model steam locomotives to run on two rail electrification systems is problematic. In practice the stud system outdoors has been found to be more resistant to continuity problems caused by the outdoor environment.

Although most three-rail systems ties the two outer rails together electrically, some manufacturers wire all three rails independently. GarGraves is a North American manufacturer of O gauge three-rail track with all of its rails insulated. Trix Express is a European manufacturer of three-rail track who insulates all three rails.

On a simple, non computerised layout only one train can run independently on either a two or three-rail system (two trains if combined with overhead lines). On the insulated three-rail type, two trains can run independently (three trains if combined with overhead lines).

• Rail terminology
• Stud contact electrification on model railways