A German immigrant living in the hills near Santa Cruz sent away for a mail-order bride from Massachusettes. The man was a violent alcoholic, however, and beat his wife on a regular basis, often forcing her to wear her wedding gown while he beat her.
After a time, the woman decided to leave her abusive husband, and began making arangements for escape. Upon learning of this, the drunkard's cruelty came to its climax, and he drugged her (though some versions of the story say that he killed her and then decapitated her post-mortem) and left her in the house, which he set on fire (some versions of the story claim that she was killed on her wedding night, before she even thought of leaving the man).
After her death, people began to report seeing a luminous woman dressed in white in the woods near the site of the house (just off of modern-day Graham Hill Road near the Ocean Street extension). Sometimes she is simply seen and/or heard as she walks through the woods. At other times she may take violent action against anyone that is unfortunate enough to encounter her (it seems likely that a white ghost said to haunt the Graham Hill Road Cemetery is the same as the White Lady).
Commentary: This is a variation on the White Lady ghost story, found throughout the world (one particularly famous example comes from the region of Bavaria, which mixes elements of the classic "White Lady" legend with elements of La Llarona). Santa Cruz's equivalent is made a bit more interesting by the fact that the area in which it occurs also has many other ghost stories associated with it (such as the stories associated with the cemetery on Graham Hill Road). The origins of the story are unclear, and even the story itself is highly variable - the version given above is the most common on heard, but another origin story for the ghost is similar to that for Christie Ranch on Santa Cruz Island, and features a young woman waiting for her husband, who has died in a shipwreck, eventually wasting away and dying of loneliness.
The location in which the story takes place, a forested area until a few decades ago when a new housing development and a condominium complex were constructed, is a slope at the foot of a hill. On this slope (at least as of a few years ago) is a decaying concrete foundation for a structure that might have been a house. The place has become a favorite location for local ghost hunters, legend trippers, and teens looking for a quiet make-out spot. It is across the street from the cemetery, and right next to one busy road and one eerily quiet road.
Sources: Local Legend, Newspaper, Santa Cruz Wiki, Wikipedia, Internet, Personal Account