Two trains collided due to sand creating a signalling fault on the line between Sydney and Newcastle. The sand was being released onto the tracks by train 3801 to increase its traction while climbing uphill. A total of 93 people were injured and six people died.  The force of the impact destroyed the last carriage of the historic train and demolished the front carriage of the Sydney train, which derailed in the accident.

An interim ban was placed on the use of steam locomotives on the New South Wales railway system.

A Coronial inquiry found that a railway signal fault occurred due to sand being dumped on the rail by the driver of 3801 to provide traction when the train went into a violent wheel-spin as it approached the Boronia tunnel. A handbrake in one of the steam train's carriages may have been partially applied, the inquiry found, to cause the train to slow down. Just outside the tunnel, the driver opened the valve to full throttle and the steam train pulled to a complete stop and more sand was applied to the rails.

While the 3801 was attempting to climb the hill, the Sydney - Newcastle train was stopped at a red signal on the other side of the tunnel. The lights apparently fluctuated from red to green seemingly because of sand on the rails. When the lights stayed permanently on the green the urban train moved forward through the tunnel, causing the crash to occur.

Those involved in the incident were cleared of blame, however it was said that although the signals had tested satisfactorily, the sand applied to the line by 3801 may have caused them to malfunction on the day.