Hi Ontario,
My kids LOVE our HO tunnel ... they sneak around the back (unfinished side) and peek through my little access windows to watch the trains go by.
I built ours out of 2" pink-stuff insulation foam. I rough-cut the individual pieces to size, first (some setback with each layer), then glued them with foam adhesive (from Home Depot) but also hot glue to achieve a quick grab. I carved with some fine-tooth hand saws and a sharp knife, and added a bit of rough "rock" texture by "whacking" it all over with a 50-grit sanding drum mounted on my drill. Then, paint to suit, and maybe add a little plantlife, etc.
I mentioned the backside access windows. In addition, our whole mountain/tunnel lifts off (upwards) for full access / portability.
I used some store-bought tunnel portals (foam, I think). I used my same 2" drum sander to carve an arch to the top-inside of the tunnel for the first several inches of tunnel depth, and painted it black for a semi-realistic look.
I screwed up a bit on the tunnel inside height, though. (My tunnel had a track ramp inside, so the inside height varied a bit.) I had previously measured the max height of my locos, and then mapped out the tunnel foam layout to that. All good, right? Well, when all was said and done, I hooked up several cars -- including a caboose -- and had our ceremonious first-run. Whack! Turns out, the stove smokestack on my caboose was my real high point. Dohh!
(I'm embarrased to say that I chop-shopped the caboose smokestack, rather than modified the tunnel height!)
Ohh ... word of advise when cutting the pink-stuff foam. It kinda gets everywhere, so do it in a blocked-off room where cleanup is easier.
Ohh ... one other tip (learned here, myself) ... If you paint your foam directly, you'll likely want to use latex (or acrylic) paint, only, as oil-based paint will disolve the foam surface.
Good luck!
TJ