The canal was built to shorten the fishing and trade routes between the east coast and Hobart.

[3] The Tasmanian Government sought tenders for the project in 1901, and the firm Henrikson and Knutson were selected after lodging the lowest price (£17,999).

While the contract specified that the canal was to be completed by 29 May 1904, the start of work on the project was delayed by negotiations over whether Henrikson and Knutson or the Tasmanian Government would retain ownership of the equipment needed to build the canal once it was complete.

[4] The canal was finally opened by Governor Sir Gerald Strickland on 13 October 1905.

While the canal was once able to be used by small trading vessels, only small fishing and recreation boats can now pass through the shifting sand bars in Blackman Bay on the eastern approaches to the canal.