The first attempt to construct a canal through what was then Colombia's province of Panama began on 1 January 1881. The project, designed as a sea-level canal, was under the leadership of Ferdinand de Lesseps, builder of the Suez Canal, with substantial financing and support from Paris. The cost and difficulty of construction in the rain-soaked tropics through unstable mountains exceeded expectations, and the French effort eventually went bankrupt after reportedly spending US$287,000,000 and losing an estimated 22,000 lives to accident and disease.

The French rushed to begin work, with insufficient prior study of the geology and hydrology of the region,and the men who started and directed the project had little or no engineering training or experience. Canals cut through mountains had to continually be widened, and their slopes reduced, to minimize landslides into the canal. Steam shovels had been invented but were still primitive. Other mechanical and electrical equipment was limited in its capabilities, and steel equipment rusted rapidly in the climate.

Health risks posed to workers in the mosquito-infested Panamanian jungle, principally malaria and yellow fever, cost thousands of lives. Public health measures were ineffective because the role of the mosquito as a disease vector was then unknown. Conditions were downplayed in France to avoid recruitment problems,[9] but the high mortality made it difficult to maintain an experienced workforce. Beyond the health and technical difficulties, financial mismanagement and political corruption also contributed to the French failure.

By 1889 the company was bankrupt, and work was suspended on May 15. In the ensuing scandal, known as the Panama affair, various of those deemed responsible were prosecuted. Charles De Lesseps, son of Ferdinand De Lesseps, was found guilty of misappropriation of funds and sentenced to five years' imprisonment, though this was later overturned.

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