Tunnel

The Tunnel tooltip tutorial as seen in the game.

The Tunnel is used to transport items underground for a set maximum distance. This allows for item lines to cross buildings or other item lines. Tier I tunnels are black and trapezoidal, while Tier II tunnels are white and rectangular.

They come in pairs, with each pair consisting of one entry tunnel and one exit tunnel. Tier I tunnel pairs can be placed 5 tiles apart, while Tier II tunnel pairs can be placed 9 tiles apart. This allows them to cross 4 tiles and 8 tiles, respectively.

Each entry tunnel automatically links itself to the nearest in-range exit tunnel of the same tier and direction. This can be exploited in conjunction with blueprints to allow overlapping (referred to as weaving) the same tier belt in opposite directions through the same tiles.

The Tunnel Tier II tooltip tutorial as seen in the game.

Tunnel pairs do not act like teleporters, and instead, they will form a hidden track that acts like a regular belt. Tunnels provide little to no speed advantage when used in replacement of regular belts.

Placement

Like belts, tunnels will not be automatically deselected after being placed. An exit tunnel will be placed if a valid tunnel pair can be formed; otherwise, an entry tunnel will be placed. While placing tunnels, if the location where the cursor is at can form a valid tunnel pair, the potential pair will be shown by a green line.

Because exit tunnels are treated as facing in the opposite direction as their corresponding entry tunnels, placing a tunnel will flip the current building placement rotation. Holding the "disable automatic orientation" key (default CTRL) will override this behavior.

Smart tunnels

The "Smart tunnels" setting, turned on by default, allows tunnels to automatically delete unnecessary belts when being placed.

A newly-formed tunnel pair will check for and delete a stretch of belts facing the same direction that occupies the entire space between the two tunnels. Smart Tunnels will also delete unnecessary extra tunnels if a potential new tunnel pair stretches past them, allowing for tunnels to be placed via dragging.

The setting only works for exit tunnels and cannot detect both belts and unnecessary tunnels in tandem.

Effect on performance

Tunnels are way faster to render, but they are harder to compute than a (long) belt.

That is because a belt can move all its items with a single tick (no matter its length), whereas if you replace the same track with tunnels, each tunnel updates individually

So: I recommend belts, except for the parts of your factory you watch actively, there I'd use tunnels.

―tobspr, on reddit

While tunnels do function similarly to belts without rendering items on their path, tunnels are not considered to be part of belt paths, a powerful optimization. Therefore, while not significant at smaller scales, a negative impact on performance can be noticed in extreme cases, such as replacing as many belts as possible with tunnels. However, the inverse may also be true for areas of the map that the camera is frequently focused on, such as near the hub.