The tramway was intended to carry Black Country coal to the rural districts of southern Warwickshire via the Stratford-on-Avon Canal, and limestone and agricultural produce northwards. The parliamentary act for the line was passed in 1821 and construction was completed in 1826, the route having been surveyed by the railway promoter William James and engineered by John Urpeth Rastrick. The branch to Shipston was built in 1836.
The line functioned as a horse-drawn tramway for several decades, but did not prosper. In 1851 the Oxford, Worcester & Wolverhampton Railway was opened through Moreton-in-Marsh and the tramway began experimenting with steam operation, adopting Stephenson's 4'-8½" gauge.
In 1859 the southern section between Moreton and Shipston was converted into a steam-hauled railway. The tramway company went bankrupt in 1868, and the line was taken over by the Great Western Railway.
The northern section of the line from Shipston to Stratford continued to be used as a horse-drawn branch-line carrying lime until the 1880s, when it fell into disuse. The tracks were lifted in 1918 as part of the war effort, and the line was formally abandoned in 1926, exactly 100 years after it had been opened. On the southern section between Moreton and Shipston a steam-hauled passenger service operated until 1929, when buses took over. The line was used by occasional freight trains until 1960, when it was closed and dismantled.