In October 1786, William Reynolds, a local ironmaster, started to build a tunnel from a meadow on the banks of the Severn towards the mine shafts at Blists Hill. The largely brick-lined tunnel was intended to be used for a canal to transport coal from the mines.

After they had driven the tunnel about 300 yards (275 metres) his workmen struck a spring of black sticky tar, or more correctly, natural bitumen. Natural bitumen, like coal and other forms of oil, is made up of the remains of ancient microscopic plants and animals. William Reynolds immediately realised the scientific and commercial potential of the discovery. The bitumen was collected in wells and outside the mouth of the tunnel it was boiled in large cauldrons to convert it into pitch to be used for the preservation of timber. Some of the 'Native Tar' was processed and used in lamps or as a varnish. Some was made into 'British Oil', a medicinal preparation for the treatment of rheumatic and skin complaints.

As much as 4,500 gallons of bitumen a week were collected when it was first discovered and over a thousand gallons a week for several years afterwards. But the supply of tar gradually diminished, only about 10 barrels a year were being extracted during the 1820s and tar sales ceased altogether in the 1840s. By 1847 a house had been built over the tunnel entrance, which was afterwards reached through its cellar.

It is doubtful whether there was ever a canal in the Tar Tunnel, but it was used to bring coal from the Blists Hill pits, and to drain and ventilate the mines. In the 1790s visitors reported that it extended about 1,100 yards (1,006 metres), as far as the upper shafts of the Blists Hill mines, Many local miners believed it reached pits further north in Madeley. The tunnel remained in use by the local coal mines until the 1930s and was an air raid shelter during World War II. After this it was almost forgotten about until rediscovered and explored in 1965 by the Shropshire Mining Club.

Visitors today can enter the first 100 yards (92 mtrs) of the tunnel, at the end of which is a locked iron gate. Tar can be seen in many places oozing through the mortar joints of the brick lining. On the right-hand side are two illuminated tar wells and the traces of several others can also be seen. A drainage pipe runs along the right-hand side.

Beyond the iron gate, about 270 yards (247 metres) from the entrance, the tunnel opens out to twice its normal width to allow trains of wagons going in opposite directions to pass. After this is an area where the roof has fallen, followed by an unlined section of brilliantly coloured rock. The tunnel then becomes no more than a culvert with an open drainage channel. At 395 yards (361 metres) there is a side passage, now blocked, which probably went to the Blists Hill lower shafts. The main tunnel becomes increasingly narrow and after 736 yards (673 metres) no further progress is possible. However, if the tunnel continued in a straight line it would reach the shafts of the Blists Hill upper pit. As the total length would then be 988 yards (904 metres), less than the distance reported by early visitors, it may well have continued further north.