Why Picton is known as the most haunted town in Australia.

Picton, a small historic town 80km south-west of Sydney, is haunted by its past.

The town, originally named Stonequarry, was founded in 1821 and is home to the famous Redbank Range Railway Tunnel.

The tunnel has a lot of history. It was used to store mustard gas spray tanks and ammunition during World War II and it was once a mushroom farm.

But long before then it was a beacon for tragedy - with many local residents accidentally dying or taking their own lives within its stone walls.

It's the legend of Emily Bollard which resonates the most with the locals. In 1916, Emily was walking through the tunnel late at night when she was hit by a train and killed. It's never been confirmed whether Emily took her own life or if her death was just a terrible accident, but ever since that night an apparition of Emily has been spotted deep within the tunnel.

Over the years, local residents and tourists have reported seeing a white flowing figure of a woman who has no face.

There have also been reports of lights floating above people's heads, sudden drops in temperature, and black shadows and ghostly children appearing out of the darkness.

And Picton's paranormal activity isn't limited to the tunnel.

According to local stories a cranky matron haunts the halls of the old maternity hospital, and residents have reported hearing the sound of crying babies, and being woken up in the middle of the night by invisible hands wrapped around their throats.

The Wollondilly Shire Hall is said to be haunted by three ghosts - a mischievous little boy, a bearded man who wears a hat and suit, and a small girl - who is often heard but not seen.

Over at the Imperial Hotel, the jukebox starts playing when it's unplugged and staff often report feeling like they're being followed by an unseen presence.

Many people have drowned in the Stonequarry Creek over the years, and visitors have reported hearing the ghostly sounds of people swimming and splashing around in the water.

According to The Daily Telegraph, the famous Picton Ghost Tours were forced to close down in 2011 after a local council crackdown.

The tours were conducted by husband and wife team - John and Liz Vincent - and had been running for over a decade. At the height of their success the tours were bringing 200 people to Picton every week.

Of course, you can always go on your own ghost tour of Picton - if you dare.