The city was founded by Americans in 1850 as the Atlantic terminal of the Panama Railroad, then under construction to meet the gold rush demand for a fast route to California. For a number of years early in its history, the sizable United States émigré community called the town Aspinwall after Panama Railroad promoter William Henry Aspinwall, while the city's Hispanic community called it Colón in honor of Christopher Columbus. The city was founded on the western end of a treacherously marshy islet known as Manzanillo Island. As part of the construction of the Panama Railroad, the island was connected to the Panamanian mainland by a causeway and part of the island was drained to allow the erection of permanent buildings.
Much of the city was destroyed in the Burning of Colón during the Colombian Civil War of 1885, and again during a massive fire in 1915. The Great Colon Fire of April 13–14, 1940 destroyed one third of the city.
Fort De Lesseps was a small U.S. Army Coast Artillery Corps fort located at the northern tip of the city. It was named after the canal developer Ferdinand de Lesseps.
In 1948, the southeastern corner of Manzanillo Island was designated as the Colón Free Trade Zone. The Free Trade Zone has since been expanded through land reclamation on the Folks River and annexation of parts of France Field (now Enrique Adolfo Jiménez Airport) and Coco Solo.
During its heyday, Colón was home to dozens of nightclubs, cabarets, and movie theaters. It was known for its citizens' civic pride, orderly appearance, and outstanding native sons and daughters. Politically instigated riots in the 1960s destroyed the city's municipal palace and signaled the start of the city's decline, which was further accelerated by the military dictatorships of Omar Torrijos and Manuel Noriega from 1968 to 1987.
A massive restoration and reconstruction project, involving parks, avenues and historic buildings and monuments, began in late 2014 and uses the hashtags #RenovaciónColón, #CiudadDeColón, #RenovationColon (Renovation of Colón) and #CityOfColon. The First Baptist Church of Colón, Panama, is one of the buildings whose renovation has been completed.
The main setting of the short story "Latarnik" ("The Lighthouse Keeper", 1881) by Polish author Henryk Sienkiewicz was the lighthouse in Aspinwall.
Like most of the Caribbean coast of Central America, Colón possesses an extremely wet tropical climate owing to the powerful, wet trade winds flowing onto high mountains throughout the year. Unlike most parts of this coast, however, February and March are sufficiently dry that Colón fits into the tropical monsoon climate (Köppen Am) category rather than a tropical rainforest climate (Af) as found in most Caribbean coastal areas. Nonetheless, the June to December period, with an average monthly rainfall of around 415 millimetres or 16.3 inches, is so wet that Colón rivals Honduras’ La Ceiba as the wettest sizable city in Central America.
Colón's population in 1900 was 3,001. It grew significantly with the building of the Panama Canal, becoming 31,203 by 1920. In 2000, the population was around 204,000.
With the city's economic decline, many of its upper and middle-class residents left, reducing its ethnic diversity. European and American expatriate communities, as well as Panamanians of Greek, Italian, Jewish, Chinese and South Asian heritage, started moving to Panama City, to former Canal Zone towns, and overseas.
Today, sizable South Asian and Arab communities live in the remaining prosperous areas of the city, as well as in gated communities outside it. The majority of the city's population is of West Indian or mixed mestizo-hispanic ancestry.
Colón was home to some of the best-educated and most well-heeled Panamanians families of West Indian heritage, such as the Drews, the Fords, the Moodys, the Robinsons, the Beebys, the Archibolds, the Edwards, the Crowns, the Hoys, the Warehams, the Abrahams, and the Mckintoshs. From these families sprang the teachers, professors, doctors, lawyers, engineers, businessmen, and politicians that contributed to the city's prosperity. Most of them eventually left the city for the United States or the United Kingdom. Their influence may still be seen, however, in their descendants that remain in the province.
Colón was also home to Las Amigas de la Caridad ("Women of Charity"), a charitable organization of women of Caribbean descent. The organization met largely in the home of Gladys Booth Ford and her stepdaughter Ruby Ford Drew at Calle 7 and Avenida Sta. Isabel. Ruby Drew was a long-standing member of Christ Church by the Sea.
Colón is home to Correcaminos Colon, 2016 Basketball Champion of Panama and member of the FIBA Americas League. The team plays its home games at the Arena Panamá Al Brown.