The North Yorkshire Moors Railway was first opened in 1836 as the Whitby and Pickering Railway. The railway was planned in 1831 by George Stephenson as a means of opening up trade routes inland from the then important seaport of Whitby. The initial railway was designed and built to be used by horse-drawn carriages. Construction was carried out by navvies and coordinated by top engineers. Their three main achievements were cutting a 120 yard tunnel through rock at Grosmont, constructing a rope-worked incline system at Beck Hole and traversing the marshy and deep Fen Bog using a bed of timber and sheep fleeces. The tunnel is believed to be one of the oldest railway tunnels in the world. In its first year of operation, the railway carried 10,000 tons of stone from Grosmont to Whitby, as well as 6,000 passengers, who paid a fare of 1 shilling to sit on the roof of a coach, or 1 shilling and 3 pence to sit inside. It took two and a half hours to travel from Whitby to Pickering.

In 1845, the railway was acquired by the York and North Midland Railway who re-engineered the line to allow the use of steam locomotives. They also constructed the permanent stations and other structures along the line which still remain today. The Beck Hole Incline was re-equipped with a steam powered stationary engine and iron rope. They also added the line south from Pickering so that the line had a connection to York and London. In 1854 the York and North Midland Railway became part of the North Eastern Railway. Steam locomotives could not operate on the Beck Hole incline; so in the early 1860s the North Eastern Railway started construction of an alternate route which opened in 1865 - this is the route which is still in use today. The original route is now a pleasant walk named the Historic Rail Trail.

Goathland station (originally known as Goathland Mill) is on the new line opened by the North Eastern Railway in 1865. The original Goathland station was located at the head of the incline, where there are still some Y&NM cottages, together with a single W&P one. One of them was almost certainly the first ticket office and waiting room.

The station buildings are to the design of the NER's architect Thomas Prosser. The collection of buildings is very little altered since they were built - the last recorded change (apart from NYMR restoration) being in 1908. The main building is a two storey stone structure with single storey extension, both with crow-stepped gable ends. There is a standard North Eastern design of cast iron footbridge. The station is listed Grade II.

This station is part of the North York Moors Railway which operates preserved rolling stock and locomotives and in terms of passenger numbers is the most popular heritage railway in Britain.