The Newark City Subway was, for the most part, constructed in the bed of the Morris Canal, which itself was built between Jersey City and Phillipsburg, NJ in the period 1825-1837. At its peak it was over 100 miles long and barges took five days to traverse its entire length. But, by the early 1900's, the railroads across New Jersey (specifically the Lackawanna and Jersey Central) signed the Morris Canal's death certificate and by 1920, the stagnant waters were a health hazard and the New Jersey state legislature pushed for the draining and filling of the canal bed.

In 1927, the Newark portion of the canal was authorized to become a right-of-way for streetcars, and construction began on this new subway on November 18, 1929. The downtown portion of the line was covered, creating a new street (Raymond Blvd.), while the outer portion was dredged out and overpasses were built at major cross streets and station locations. In 1934, rail was laid and the first streetcar traversed the tracks on October 3, 1934. The original southern terminal was at Warren Street; the extension to Pennsylvania Station was completed and opened June 20, 1937. The northern extension from Heller Parkway to Franklin was completed on November 22, 1940.

By 1935, a number of Newark streetcar routes had been diverted into the new subway. Street connections were built at various locations for streetcars to enter the subway. These connections were located at:

	Between Penn Station and Broad Street, connection to the Cedar Street subway, used by the 13-Broad St., 27-Mt. Prospect, and 43-Jersey City car lines; the Cedar Street subway was a short connection to the trolley terminal at the Public Service building; service could be run through the PSCT terminal to the City Subway;
	Between Washington and Warren stations for the 21-Orange via Market route;
	Just north of Norfolk St. station for the 23-Central Ave. route;
	At the Orange St. grade crossing for the 21-Orange via Orange St. route;
	At the Bloomfield Ave. station for the 29-Bloomfield route.