The song's lyrics were written by Phil Collins. They are about the railway workers of the 19th century, many of whom died constructing Britain's railways. The song narrates the thoughts and feelings of an unnamed railway worker in the form of a soliloquy or internal monologue. The title is a phrase meaning the completion of a major railway project—placing the 'last spike' is often a momentous occasion.
The original idea came from a book that actor Dennis Waterman gave to Collins.
"Driving the Last Spike" was performed live only on the band's 1992 The Way We Walk Tour. The second half of the song (starting at 5:41) was transposed to a lower key starting sometime after the Texas shows early in the tour. This was done to accommodate Collins' deepening voice without straining. (A recording of an early performance of "Driving The Last Spike" was released as an Atlantic Records promo CD featuring the entire song in the album key.)