The Port Melbourne railway line was the first significant railway in Australia, and was opened by the Melbourne and Hobson's Bay Railway Company, to carry passengers arriving in Victoria at Station Pier, and to alleviate the high cost of shipping goods using small vessels up the Yarra River to Melbourne.

By the 1960s, traffic to the port had dropped due to changes in cargo handling, and so in 1961, the branch to Princes Pier was reduced to a single track and worked as a siding, rather than a main line. Further rationalisations were made in December 1969, when the line from Graham to Port Melbourne was singled, with the Up track lifted, and the Up platform taken out of service. The signal box was also closed, replaced by a signal panel in a new station building, located on the Down platform.

The last passenger train ran on 10 October 1987. Goods trains had continued to run through the station to Port Melbourne until at least September of that year

In 1987, the line was converted to light rail, and it is now served by tram route 109, which operates between Box Hill and Port Melbourne.

Melbourne tram route 109 now operates on the converted track. The section from Southbank Junction to Port Melbourne was converted to light rail, requiring the conversion from broad gauge 1,600 mm (5 ft 3 in) used by the Melbourne rail network to 1,435 mm (4 ft 8+1⁄2 in) standard gauge tram track, as well as reducing the overhead voltage from 1,500 V DC to 600 V DC required for the trams. Additionally, low level platforms were built on the sites of the former stations to accommodate the trams which contained steps to street level. Low floor trams have since been introduced to the route.