Panama has marked the start of the waterway's biggest expansion project.
Amid applause and the release of thousands of balloons, Panamanian President Martin Torrijos celebrated the start of two wider sets of locks being added to both sides of the canal.
Former U.S. President Jimmy Carter attended the ceremony along with several Latin American leaders, including Colombian President Alvaro Uribe.
"We are witnesses to an exceptional and unique act," Torrijos said moments after the explosion.
The US$5.25 billion (3.85 billion EUR) expansion is expected to double the 50-mile (80-kilometer) canal's capacity and lower the price of consumer goods on the East Coast of the United States by allowing wider vessels to squeeze through with more cargo.
About two-thirds of the cargo that passed through the canal is headed to or from the United States. China is the Panama Canal's second-largest user.
The waterway now moves 4 percent of the world's cargo. The new locks, approved in a referendum nearly a year ago, are expected to be ready for use between 2014 and 2015.
The Panama Canal Authority, the autonomous government agency that runs the canal, is borrowing up to US$2.3 billion (1.8 billion EUR) between 2009 and 2011 to help finance the project. It expects to pay that back by increasing ship tolls an average of 3.5 percent a year.
In addition to benefiting international trade, the new locks are expected to generate more revenue for the canal and Panama's government, which is struggling to pay back more billions in debt and battle poverty that affects some 40 percent of the population.
"I'm proud of the grand plans for this expansion," said Carter, who signed the 1977 treaty with Torrijos' father, strongman Omar Torrijos, that led to the U.S. handover of the canal to Panama on Dec. 31, 1999.
Under Panama's control, canal accidents and the time needed to transverse the canal are down, while revenues have increased.
U.S. President Theodore Roosevelt arranged for Panama's independence from Colombia in 1903 to build the canal. By some accounts, more than 25,000 people died during American and French efforts to build the engineering marvel, which opened on Aug. 15, 1914.