Staff and volunteers on the privately run railway were told of the award by the Wensleydale Railway Association's chairman, Keith Cameron.
He and his family travelled by train from Redmire, the current railhead west of Leyburn, to Leeming Bar to make the announcement.
The Duke of York's Community Initiative Award recognises work being done in communities in Yorkshire and seeks to encourage others to become involved in the process of support and regeneration.
To win an award schemes must have a significant impact on the people in their neighbourhood and be able to show that they have improved the quality of life.
In the 16 years since the Wensleydale Railway Association was established in 1990, it has set up the Wensleydale Railway Trust, a registered charity, and Wensleydale Railway plc. The company leases the 22-mile branch line from Network Rail, has reopened five stations and has operated trains over a 17-mile stretch since July, 2003. It has 3,500 members and 300 working volunteers, who operate alongside a team of seven paid railway staff. One of its aims is to reopen the link with the East Coast Main Line at Northallerton.
WRA secretary Ruth Annison said: "Members are the lifeblood of the association, through which they volunteer the practical help and support that has led to this award. Past and present members can take satisfaction from this external recognition of their contribution."
The Wensleydale Railway is running trains daily until Sunday.
Leeming Bar station is half a mile from the east side of the A1 near Bedale. Timetable details are available from Leyburn TIC on 01969 623069.
The Duke of York's Community Initiative Award is run by the trustees of the St William's Foundation in York and is supported by the Lord Lieutenants of North, West, East and South Yorkshire.