Rail squats originate from a number of sources, such as corrugations, indentations and welds. A five-year continual field monitoring study was performed on squats induced by corrugations. This study indicated that a small black depression formed at the corrugation under wheel-rail dynamic forces, and then, a primary crack typically initiated on the gauge side edge of the depression. Subsequently, the crack began to propagate in the rail surface in a U shape toward the gauge side in both the traffic direction and the opposite-traffic direction and into the rail toward the field side at an angle of approximately 20°. Rail inclination could influence the crack initiation location and propagation path. The geometry of the black squat depression was initially elliptical, and then, its edge followed the U-shaped cracking path as it grew. The squats turned into a kidney-like shape, typically with a U-shaped crack. Tensile stress likely led to the squat crack initiation and propagation. This cracking phenomenon and mechanism are analogous to the ring/cone crack formation of brittle materials under sphere-sliding contact. As the squats grew further, a ridge formed in the middle part of the depression, and an I-shaped crack appeared at this ridge due to the impact of the wheels. This process eventually led to two-lung-shaped mature squats, typically with a Y-shaped crack. The findings of this paper provide insight into the formation of rail squats.