All trains were stopped at platforms for about an hour until services began running again about 4pm.
Sydney Trains chief executive Matt Longland said the issue stemmed from an "extremely rare" failure in the digital train radio system about 2.45pm.
"For safety reasons that meant that we had to bring trains back to platforms so customers could safely get off those trains," Mr Longland said.
Sydney Trains operates about 3000 service a day and authorities said it would take some time to return to normal scheduling.
Passengers were being advised to expect major delays and gaps in service well into the evening.
At the Town Hall Station, staff had closed off the area behind the turnstiles and asked commuters to head to the ground level, but many lingered.
Greg Jacques said the delay made a terrible day worse as he was heading to St George Hospital in Kogarah to see his dying uncle.
"I'm stressed out, man. I've got to go say goodbye to my uncle because he's passing away," he said.
Joanna Dunbar-Poole, 79, said she was headed home to Cabrammata when the shutdown hit and getting a bus home wasn't an option for her.
"I'm going to Central and will sit around there and if it goes on all night I'm going to stay in a youth hostel or something," she said.
Engineers were unable to reset communication services after they failed and instead switched to a backup system, which took about an hour.
"This system is a critical communication system between our rail operations centre and our train crew," Mr Longland said.
"And while the rail network was fully operational, we aren't able to operate trains safely while the train crew can't communicate with the rail operations centre."
The early indication was that it was system-related and not any kind of cybersecurity issue.
"We'll fully investigate the root cause of the incident to ensure that doesn't happen again," he said.
"We apologise to customers for the interruption to services this afternoon."
Transport for NSW said it requested additional buses and worked with transport operators and light rail to run extra services to help with the recovery of services.
Labor's transport spokeswoman said tens of thousands of people, including school children, had been stranded again.
"Passengers have faced chaos, cancellations and delays for more than a year now," Jo Haylen said.
"Passengers will be asking tonight where were the backup systems and where are the backup buses so they can get home."
