Like a number of towns that felt themselves superior to the new-fangled railways, the landowners of Portstewart resisted the attempts of promoters to link what they saw as their superior sea-bathing resort to a form of transport that would make it accessible to more than the select clientelle hitherto catered for. To be fair though, many local residents were angered by the position of the town's leading landowners, especially when they saw the very beneficial and lucrative effect that a rail connection had on their near neighbour, Portrush. In many ways, the lack of a direct rail connection with Coleraine, Belfast and Derry, inhibited the town's development and prevented the sort of growth enjoyed by other seaside resorts in the late Victorian and Edwardian periods. The best that it could ever claim as far as standard-gauge facilites were concerned was an unimportant passing station on the B&NCR's branch from Coleraine to Portrush which was located almost 1¾ miles from the town itself.

Local residents and entrepreneurs attempted to overcome Portstewart's isolation by promoting a street tramway as early as the 1860s and this eventually bore fruit in the establishment of the tramway twenty years later. Initially, attempts were made to have the link built to the Irish standard gauge but, not surprisingly the once-rejected B&NCR declined to get involved. A street tramway finally emerged although much of its length was across country on a standard light narrow-gauge railway formation. On opening, the B&NCR had been brought back into the fold, buying some share capital and becoming responsible for its operation. This was by a conventional four-wheeled steam tram loco hauling small passenger trailers. The tram connected with the B&NCR's service between Portrush and Coleraine. At the latter point passengers could often remain in their carriage and continue on to Belfast or join the connecting service to Derry.

The tramway was never profitable and indeed was declared bankrupt in 1892. It struggled on for a few more years but was put up for sale as a going concern in 1896, eventually being bought by the B&NCR, the only interested party, in 1897. By that stage the tramway was in very poor condition and the B&NCR undertook extensive repairs and renovations including the construction of a new depot at Portstewart. In the new century an additional loop and shelter were provided on the outskirts of the town.

By the 1920s the tramway was running at a consistent annual loss and it was decided to replace it with a road bus service. Consequently the last trams ran in January, 1926, the track was lifted and the depot building in Portstewart was sold. Two of the tram locos survived and one is preserved at the Ulster Folk and Transport Museum, Cultra, Co. Down, the other at Hull Museum.