The canal was excavated in 1888[4] to facilitate access to Peninsula Lake by large steam ships.

Peninsula Lake was named by the explorer and surveyor Alexander Murray during his 1853 expedition to the area.

Murray named the lake in honor of its distinctive geographical shape, which features two prominent peninsulas on its northern shoreline.

[5] The first permanent settlers in the area were Reverend Robert Norton Hill and his family, in 1869, on the peninsula.

[6] In 1877 a dam was constructed to control the water levels of Fairy and Peninsula Lakes to enhance navigation and logging operations.