On his travels buying and selling wool, Edward Pease came to the conclusion that there was a great need for a railroad with waggons drawn by horses to carry coal from the collieries of West Durham to the port of Stockton. In 1821 Pease and a group of businessmen formed the Stockton & Darlington Railway company. Over three-quarters of the original £120,000 invested came from the Darlington area. The largest investor was Joseph Gurney, the Quaker banker from Norwich, who purchased £14,000 worth of shares.
On 19th April 1821 an Act of Parliament was passed that authorized the company to build a horse railway that would link the collieries in West Durham, Darlington and the River Tees at Stockton. Nicholas Wood, the manager of Killingworth Colliery, and his enginewright, George Stephenson, met Pease and suggested that he should consider building a locomotive railway. Stephenson told Pease that "a horse on an iron road would draw ten tons for one ton on a common road". Stephenson added that the Blutcher locomotive that he had built at Killingworth was "worth fifty horses".
That summer Edward Pease took up Stephenson's invitation to visit Killingworth Colliery. When Pease saw the Blutcher at work he realised George Stephenson was right and offered him the post as the chief engineer of the Stockton & Darlington company. It was now now necessary for Pease to apply for a further Act of Parliament. This time a clause was added that stated that Parliament gave permission for the company "to make and erect locomotive or moveable engines".
In 1823 Edward Pease joined with Michael Longdridge, George Stephenson and his son Robert Stephenson, to form a company to make the locomotives. The Robert Stephenson & Company, at Forth Street, Newcastle-upon-Tyne, became the world's first locomotive builder. Stephenson recruited Timothy Hackworth, one of the engineers who had helped William Hedley to produce Puffing Billy, to work for the company. The first railway locomotive, Locomotion, was finished in September 1825. The locomotive was similar to those that Stephenson had produced at the collieries at Killingworth and Heaton. The boiler of the Locomotion had a single fire tube and two vertical cylinders let into the barrel and the four wheels were coupled by rods rather than a chain.
Work on the track began in 1822. Stephenson used malleable iron rails carried on cast iron chairs. These rails were laid on wooden blocks for 12 miles between Stockton and Darlington. The 15 mile track from the collieries and Darlington were laid on stone blocks.
The Stockton & Darlington Railroad was opened on 27th September, 1825. Large crowds saw George Stephenson at the controls of the Locomotion as it pulled 36 wagons. Twelve wagons of coal and flour, six of guests and fourteen wagons full of workmen. The initial journey of just under 9 miles took two hours. However, during the final descent into the Stockton terminus, speeds of 15 mph (24 kph) were reached. These increased speed surprised one man and he fell from one of the wagons and was badly injured.
The train also included a purpose built railway passenger coach called the Experiment. The carriage seated 18 passengers and as it had no springs it must have provided an uncomfortable ride but for the first time in history, a steam locomotive had hauled passengers on a public railway.
The Darlington & Stockton Railroad began running trains every day except Sundays. The company received 1d per ton of coal for every mile carried. The following year this was reduced to half-penny a mile. Local colliery owners reported that locomotive transport was a third cheaper than horse transport.
For the first few years, only the freight wagons were pulled by locomotives. The passenger coach, Experiment, was housedrawn. It was built like an ordinary road coach except that it was double-ended so that the vehicle did not have to be turned for return journeys. The Darlington & Stockton trains were equipped with dandy carts in which the horses were placed when it was going downhill.