The line was authorised by The Stocksbridge Railway Act of 1874 (37 & 38 Vict. c.4). This Act of Parliament created the Stocksbridge Railway Company, with powers to construct a railway which was 1 mile 7 furlongs and 1 chain long (just under ). The railway was to be financed by the issuing of 3,300 shares, valued at £10 each, to give a working capital of £33,000. The Act gave the Manchester, Sheffield and Lincolnshire Railway, to whose line the railway would connect at Deepcar station, rights to invest in the Stocksbridge Railway, although they were not permitted to sell any shares which they acquired. The company was to have three directors, and these were named as Samuel Fox, Henry Unwin, and James Halliday in the Act, on the understanding that when the first ordinary meeting of shareholders was held, they could retain these men or elect others as they thought appropriate. Once the Act became law, the directors had three years to complete construction of the railway.
