The Pacific Railway Act of 1862 (12 Statutes at Large, 489), as enacted by the United States Congress, was approved and signed into law by the President, Abraham Lincoln, on July 1, 1862. Officially entitled "AN ACT to aid in the construction of a railroad and telegraph line from the Missouri river to the Pacific ocean, and to secure to the government the use of the same for postal, military, and other purposes," some provisions of the original Act were subsequently modified, expanded, and/or repealed by four additional amending Acts passed in 1862, 1864, 1865, and 1866.
Based largely on a proposed Pacific railroad bill originally reported six years earlier on August 16, 1856, to the 34th Congress (1st Session) by the Select Committee on the Pacific Railroad and Telegraph, the Act as passed in 1862 authorized both the making of extensive land grants in the Western United States, and the issuance of 30-year, 6% U.S. Government Bonds, to the Union Pacific Railroad and Central Pacific Railroad (later the Southern Pacific Railroad) companies in order to construct a transcontinental railroad. Sec. 3 of the Act granted 10 square miles (26 km²) of public land for every mile laid except where railroads ran through cities and crossed rivers. This grant was apportioned in 5 sections on alternating sides of the railroad, with each section measuring one fifth of a mile in length by 10 miles in height. The Bonds were authorized by Sec. 5 to be issued at the rate of $16,000 per mile of tracked grade completed West of the designated base of the Sierra Nevada Mountains (CPRR) and East of the designated base of the Rocky Mountains (UPRR). It also provided in Sec. 11 that the issuance of bonds "shall be treble the number per mile" (to $48,000) for tracked grade completed over and within the two mountain ranges (but limited to a total of three hundred miles at this rate), and doubled (to $32,000) per mile of completed grade laid between the two mountain ranges The U.S. Government Bonds constituted a lien upon the railroads and all their fixtures, and all were repaid in full (and with interest) by the companies as and when they became due. Sec. 10 of the 1864 amending Act (13 Statutes at Large, 356) additionally authorized the two companies to issue their own "First Mortgage Bonds" in total amounts up to (but not exceeding) that of the bonds issued by the United States, and that such company issued securities would have priority over the original Government Bonds.
From 1850-1871, the railroads received more than 175 million acres (708,000 km²) of public land - an area more than one tenth of the whole United States and larger than Texas.
Railroad expansion provided new avenues of migration into the American interior. The railroads sold portions of their land to arriving settlers at a handsome profit. Lands closest to the tracks drew the highest prices, because farmers and ranchers wanted to locate near railway stations.
The act of March 3, 1863 (12 Statutes at Large, 807)specified a gauge to be used by the railroads of "four feet eight and one-half inches." That gauge had previously been used by George Stephenson in England for the Liverpool and Manchester Railway (1830) and was already popular with railroads in the northeastern states. Due in part to the act of 1863 that gauge would come to be widely (but not universally) adopted in the United States and is known as standard gauge. A common gauge choice allowed easy transfer of cars between different railroad companies.