The Homer Tunnel opens the road to Milford Sound

By 1914 Milford Sound had become one of the country's top resorts, though most visitors had to walk in and some came by sea. Te Ara says Henry Homer discovered a low saddle leading from the Hollyford River to the Cleddau River and Milford Sound in 1888; NZHistory says William Homer and George Barber found the Homer Saddle in January 1889, and the 1966 Encyclopaedia credits W. H. Homer in 1889. According to the 1966 Encyclopaedia of New Zealand, Homer suggested a tunnel through the ridge below the saddle, and in 1929 J. Cockburn proposed a through-road and tunnel to the Southland Progress League. During the economic depression of the 1930s the government used unemployed men to build roads, and work on the Milford Road from Te Anau began in 1933.

Excavation of the tunnel started in 1935 as an unemployment relief project, at first with five men armed with picks and wheelbarrows. The eastern portal was 945 m above sea level and saw virtually no sun for six months of the year. Average annual rainfall exceeded 6000 mm, snowfall was frequent and heavy, and the men lived in tents. Water from melting snow entered the tunnel through fractures in the rock. Most workers were paid on the basis of progress made, and earnings were often extremely low. Avalanches killed three workers. One died in July 1936, and on 4 May 1937 the engineer-in-charge, D. F. Hulse, and the overseer, T. W. Smith, were killed in a second avalanche.

The tunnel was pierced in 1940, but the Second World War then suspended work, and in 1945 a very large avalanche severely damaged the eastern portal. Work resumed after the war. Sources differ on when the tunnel opened. The 1966 Encyclopaedia says it was officially opened for road traffic in 1953, and Te Ara's Southland region story also says it opened for traffic in 1953. Te Ara's Bridges and tunnels story says that it was not until 1954 that the first car used the tunnel, and NZHistory says the tunnel was not opened until 1954. Te Ara gives its length as 1,255 metres; NZHistory gives 1240 m.

Te Ara's biography of Ivon Wilson records that the Te Anau–Milford Sound road was officially opened in 1953. The Automobile Association (Southland) then took over the upgrading of former works camps at Milford and Cascade Creek and set up a new motor camp at Te Anau. Te Ara says visitor numbers increased exponentially once the tunnel opened, and that Te Anau only developed as a town after the opening of the tunnel and the road. Trampers on the Milford Track no longer had to walk back to Lake Te Anau.

In the early 2000s more than 450,000 people visited Milford Sound each year, despite the heavy rainfall, sandflies and the danger of winter avalanches near the tunnel. The road and tunnel remain at the mercy of heavy snowfalls each winter. In 2009 an avalanche closed the road for more than a week, with trees and snow up to 5 m deep blocking several sections of State Highway 94 between the Hollyford and the tunnel.