Karalee Reservoir was constructed to provide water for slow steam trains enroute to Kalgoorlie. The site was chosen mainly because after rain the granite outcrop provides a natural catchment area.

The water catchment system was built between 1896 and 1897 and has a capacity is 48 million litres. The reservoir is about 8 metres deep.

Three other dams were constructed at this time in Merredin, Kellerberrin and Cunderdin along with Karalee. The total cost of these four dams being £15,000, a huge undertaking and cost in 1896. Other railway dams constructed in the Yilgarn Shire were at Moorine Rock and Bodallin.

Trains would stop at Karalee with suspected ‘hot boxes’ and consequent long waits until they cooled down regularly occurring. When this happened, drivers, crew and many passengers would adjourn to the hotel.

Karalee railway siding, stone cottages for the station master, railway staff and barracks for the train crew, along with the hotel which operated for 74 years until September 1971, were the only buildings established. The cottages and barracks were eventually dismantled and moved to Yellowdine. The hotel, located between Great Eastern Highway and the narrow gauge railway two kilometres south of the dam, catered for travellers and woodcutters who were cutting timbers for mines and the steam operated pumping station. After delicensing in 1971 the licence was transferred to Kwinana and then to Como where the ‘Karalee’ name lives on at the Karalee Tavern.

The Hotel catered for travellers, selling petrol, food and apparel. Vandals have long since destroyed this historical site.

The Old York Road/Hunt Track and the derelict telegraph line lie south of the dam. The remains of the old forge operated during the construction of the railway dams to provide, among other things, shoes for the many horses utilised on the project may also be seen here.

From the top of Karalee Rock Mt Clara can be seen approximately two kilometres to the north-north-west.