Railways transformed inland transportation during the nineteenth century. In this paper, we study how railways led to population change and divergence in an already urbanized economy, England and Wales. We make use of detailed data on railway lines, stations, and population change in more than 9000 spatial units. We also create a least cost path based on major 1801 towns and the length of the 1851 rail network to address endogeneity. Our instrumental variable estimates show that having railway station in a locality by 1851 led to significantly higher population growth from 1851 to 1891 and shifted the male occupational structure away from agriculture. Moreover, we estimate that having stations increased population growth more if localities had greater population density in 1801. Also, there were population losses for localities 5 to 15 km from stations, indicating a displacement effect. Overall, we find that railways reinforced the urban hierarchy of the early nineteenth century and contributed to further spatial divergence of the English and Welsh population. The resulting implications for national income and labor productivity are found to be large.