In the 1630s, enterprising merchants from La Rochelle in France built a small fortified settlement called Saint Pierre on a narrow isthmus of land separating the Atlantic Ocean from the Bras d'Or Lake. Nicholas Denys, another merchant from La Rochelle, took possession of this settlement in 1650. The area had long been travelled by the Mi'kmaq people who portaged their canoes across the isthmus. Anxious to set up a fur trading operation, Denys encouraged the Mi'kmaq to bring their furs in exchange for European goods. The old portage trail became a "haulover" road where oxen or people could pull Denys' ships from one shore to the other.
During the winter of 1668-69, a disastrous fire destroyed all of Denys' buildings and Saint Pierre. No new development occurred until 1713 when the French moved Acadian colonists to Cape Breton following the loss of mainland Nova Scotia to the British. One of their new settlements, Port Toulouse, was built close to the location of Denys' 17th century community. Port Toulouse soon became a major supply centre for Louisbourg, 120 km (74 miles) to the north. To protect the new settlement and transportation across the isthmus, the French built a fort on the shore. Both the fort and the settlement were destroyed by the British in 1758 after their capture of Louisbourg.
People from Great Britain moved into the area soon after, and a prominent Irish merchant, Lawrence Kavanagh Jr., established himself close to the ruins of Port Toulouse. In 1793, as revolutionary France declared war on Great Britain, the British built Fort Dorchester on the summit of Mount Granville, the highest spot in the region.
When the present village of St. Peter's was founded early in the 19th century, the new residents used Denys' old "haulover" road. They laid down skids so that ships could once again be hauled across the isthmus to the inland waterway, a shorter and more protected route to the growing settlements around Sydney.
With a steadily increasing volume of shipping, plans were soon made to replace the old portage road with a navigation channel. The first feasibility study was commissioned in 1825, and work on the canal began in 1854. A passage about 800 m (2600 feet) long was cut through the narrowest point of land. After 15 years of digging, blasting and drilling, an opening averaging 30 m (100 ft.) wide had been cut through a solid granite hill 20 m (66 ft.) high. This passage was shored up with timbers and planking. Locks were then installed and the canal finally became a reality in 1869. Additions and renovations, widening the channel and lengthening the locks, continued until 1917. In 1985, Parks Canada completed a major project to restore both the Bras d'Or Lake and the Atlantic Ocean entrances to the canal. All kinds of pleasure craft now use the canal during the summer: canoes, schooners and power cruisers. Only occasionally does a commercial vessel pass through these locks that once were so vital to communication and the economy of Cape Breton Island.
There is tidal activity at both ends of the canal, and there can be a difference of up to 1.4 m (4.5 ft.) between the water level of the lake and ocean. For this reason, both entrances have double-lock gates. The lock is 91.44 m (301 ft.) long by 14.45 m (47 ft.) wide and can handle vessels with a 4.88 m (16 ft.) draught.
The only surviving structure from the 19th century is the lockmaster's house which dates from 1876. Nicholas Denys' Fort Saint Pierre lies buried in the garden of this house. To the east, the ruins of Fort Dorchester high atop Mount Granville overlook the approaches to the canal. Artifacts unearthed during archaeological work on the Nicholas Denys settlement and nearby Port Toulouse show the importance and sophistication of these early European sites.