It connects Lake Thun with a quay in the town of Interlaken adjacent to Interlaken West railway station, thus allowing shipping services on the lake to serve the town and connect with railway services.

As a consequence, the water level of the canal at Interlaken West is significantly lower than that of the adjacent river and surrounding land.

However there is no navigable connection between the two lakes, and in the 5.5 km (3.4 mi) between them the Aar river drops some 6 metres (20 ft), passing over several weirs.

However by the 1890s the railway was being extended to connect with Thun and the rest of the Swiss railway network, threatening the shipping services, and the United Steam Navigation Company for Lakes Thun and Brienz (VDG) who operated those services responded by constructing the Interlaken ship canal to allow their vessels to reach the centre of Interlaken.

In turn, this new company was taken over by the Bern-Lötschberg-Simplon railway, which eventually became part of BLS AG, the current operators of the lake shipping.