Proposals to make the Tay into a navigable waterway date to 1824, when local Perth entrepreneur William Morris started to lobby for this.

In 1831, John Jackson, an ex-Sergeant in the army and a miller in Perth was awarded the contract to build the canal.

Perth's local member of parliament, John G. Haggart, had some influence in launching this investigation which was carried out by the engineers of the Rideau Canal under the direction of Superintendent Wise.

In 1883, a Government of Canada Order-in-Council authorized a contract with A.H. Manning & Macdonald Company for the construction of the Tay Canal.

The proposal included deepening the entire system to the required 1.7 m (5 ft 7 in) depth; cutting a 18 m (59 ft) wide, 2 km (1.2 mi) long canal to Beveridge Bay; building two locks near the south end of the canal cut, each with a lift of 4.0 m (13.1 ft); and building a flat overflow dam across the former channel of the Tay near the entrance to the new canal cut.

Final excavation of the canal to the required navigation depth and an expansion of the basin in Perth were not completed until 1891.

The limiting factor for a trip all the way into Perth is the fixed height of the Craig Street bridge (2.1 metres (6.9 feet)).