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Although most railways of central Canada were initially built to a broad gauge, there were several on Canada's Atlantic coast which were built as individual narrow gauge lines. The largest systems in the country were the 3 ft 6 in (1067 mm) (Cape Gauge) lines on the islands of Prince Edward Island and Newfoundland, as well as a line in the Saint John River valley of New Brunswick (New Brunswick Railway); the Newfoundland Railway being the longest narrow gauge system in North America. Operated by CN since 1949, the Newfoundland system was the last commercial common carrier narrow gauge railway in Canada at the time of its abandonment in September 1988.

Several early railways in Ontario were also built to a narrow gauge in the 1860s and 1870s as a cost-saving measure. Most were quickly changed to standard gauge either to facilitate connections to other railways (or due to outright purchase by larger companies), negating those cost savings. When the 3 ft 6 in (1067 mm) Prince Edward Island Railway was built starting in 1871, the contractors were promised a fixed price per mile but the colonial government failed to specify how many miles were to be built. As a result, the railway wandered all over the landscape. By 1872, construction debts threatened to bankrupt the colony. When Prince Edward Island joined Canada in 1873, it did so under the condition that the Canadian government take over the railway. It did so, and quickly converted it to 1,435 mm (4 ft 8½ in).

Construction on the 3 ft 6 in (1067 mm) Newfoundland Railway began in 1881 and continued on amid recrimination and lawsuits until the line crossed the island in 1898. Since no roads existed, it was a life-line for the island, but it chronically lost money. The Newfoundland government took it over in 1923, and the Canadian government transferred it to Canadian National Railways (CNR) when Newfoundland became part of Canada in 1949. After the Trans-Canada Highway was completed across Newfoundland in 1965, trucks took most of its freight service, and even the CNR started to move its freight by truck. The death knell came for both the Newfoundland and P.E.I. Railways in 1987 when Canada deregulated its railway industry and allowed railways to abandon money-losing lines. The Newfoundland Railway was abandoned in 1988 and the P.E.I. Railway in 1989.

Train on the White Pass and Yukon Route

Various mining and industrial operations in eastern, central and western Canada have also operated narrow gauge railways. The only narrow gauge system still in operation in the country is the 3 ft (914 mm) gauge White Pass and Yukon Route. The WPYR was built as a common carrier but closed in 1982 only to reopen in 1988 to haul tourists from cruise ships docking at Skagway, Alaska through White Pass on the International Boundary to Bennett, British Columbia. See List of historic BC Narrow Gauge railways