The first signs of human settlement in Panama are thought to be about 10,000 years old. Six different Native American cultures can be identified today: The three largest are the Embera Indians of the Darien jungle area, the Kuna of the San Blas Islands, and the Guaymi Indians of the western provinces of Chiriqui and Bocas del Toro. Spaniard Rodrigo de Bastidas sailed along the Caribbean coast of Panama in 1501, and Columbus arrived in 1502. Despite dropping anchor in what is now the mouth of the Panama Canal on the Caribbean side, he never realized how close he was to the Pacific Ocean. In 1513, Juan de Balboa landed in the area, hiked across the Darien jungle and became the first European to see the Pacific.

The Spanish used Panama as the transhipment point for treasure and goods being sent between the west coast of South America and Spain. As a result, buccaneers desiring Spanish loot set their sights on the area. By the 1700s, pirate attacks made it too dangerous to continue using the route, and ships started sailing around Cape Horn. Panama went into a decline.

In 1821, Panama declared its independence from Spain and joined with Venezuela, Ecuador and Colombia to form Gran Colombia. When that union split up, Panama remained a part of neighboring Colombia. The California gold rush of the mid 1800s brought unprecedented traffic across the Panamanian isthmus. Once on the Pacific side, prospectors would take boats up the coast to the goldfields (a far easier journey than crossing the U.S. by land).

In the 1880s, a French company began constructing a canal across the isthmus, but after losing 22,000 workers to disease and seeing investors go bankrupt, it sold the rights to the U.S. The Colombian government refused the U.S. permission to build, however, which set the stage for Panama's split from Colombia. In 1903, revolutionaries on the isthmus - backed by the U.S. - declared Panama an independent country and defeated Colombia's attempts to retake the territory. These actions cleared the way for the U.S. construction of the canal, which was completed in 1914.

The U.S. presence in Panama continued after the completion of the canal. In addition to stationing troops in the country to protect the waterway, the U.S. frequently intervened to control political events there. On 31 December 1999, the U.S. relinquished control of the canal to Panama. At present, the country is being guided by its first female president, Mireya Moscoso.