In 1871, the City granted a franchise to the Peoria Horse Railway Company (PHR), which had been incorporated on February 18, 1865, with $100,000 of capital. The company, delayed by financial problems, did not begin operating its first route until June 1, 1872. Horsecars operated over trackage from Harrison Street to Washington Street, on Washington to Main Street, and on Main to Elizabeth Street (later renamed Sheridan Road). An extra team of horses was needed to pull the cars up the Main Street hill, and a hand-operated turntable was installed at Elizabeth Street. The company eventually operated 11 horsecars and 22 horses over 2.4 miles of trackage.

The PHR was foreclosed on November 29, 1876, and was reorganized as the Peoria City Horse Railway on December 2. At the end of 1876, the company was purchased by the CCHR; horsecars then operated down Main Street to Adams, to Chestnut Street (later renamed State Street), and then to Union Station. Within 10 more years, the company was operating 12 miles of trackage with 59 horsecars, 100 horses, and 35 mules.