Surveyor N.M. Brazier recorded the name Karalee Rock in 1894 while travelling to Coolgardie to lead a major survey of the country between Coolgardie and the Murchison. However, it was for a rock 1.5 kilometres SSW of current day Karalee. Over time the name Karalee was applied to Hunt’s Koralling Rock, today’s Karalee Rock. Brazier’s Karalee Rock can be either considered to be a part of today’s Karalee Rock or and un-named, adjacent granite outcrop.

Karalee Rock, the water harvesting walls, the steel aqueduct or flume, and the reservoir or tank were a vital part of the development of the railway from Perth to Kalgoorlie. Water was constantly needed along the length of the railway for the steam locomotives, construction work and for the workers themselves.

This problem was solved by developing reservoirs at regular interval along the length of the railway. Karalee is the finest example remaining of these ingenious constructions.

The railway between Southern Cross and Coolgardie was constructed during 1895 and 1896. It passed three kilometres south of Karalee Rock.

The Karalee rock catchment and reservoir was constructed by railway entrepreneur, William Noah Hedges, in 1897.

Railway engineer William Shields designed the Karalee water supply to be adequate to service up to twelve trains a week running between Southern Cross and Coolgardie. The growth in population in Coolgardie was so rapid that within a year twenty trains were running between the two towns every day.

The water harvesting system ingeniously uses two huge granite outcrops. A ‘harvest wall’ of granite slab, all cut from the top of the rock and laid by hand,  was built around the perimeter of each rock and water flowing off the rock was caught by the wall, directing it into a stone-lined sluice that sent it to a large earthen reservoir before travelling cross county in a steel aqueduct, hand riveted at each joint, and an earth channel. This method of water harvesting in a low rainfall (only 250mm per annum) area resulted in substantial runoff – enough to fill Karalee Reservoir  with 48 million litres. The water collected in the reservoir was piped to an overhead tank 3.6 kilometres to the south near the railway station.

In 1999 Karalee was handed over to the National Trust (WA). It was listed on the State’s Register of Heritage Places in 2001.