The Village of Canal Flats is situated on a large alluvial fan formed by the Kootenay River. In 1808, David Thompson named these flats McGillivray's Portage after crossing from Columbia Lake to the Kootenay River. At this location, Columbia Lake - the source of the Columbia River - and the Kootenay River are separated by 1.5 kilometres (1 mile) and less than four metres (13 feet) in elevation. Canal Flats name orginates from a scheme devised in the 1880s to dig a canal through the portage separating the Kootenay River and Columbia Lake. The canal, completed in 1889, was so narrow and dangerous, it wrecked in 1902 after only two boats passed through. Although aboriginal people, explorers, trappers and gold-seekers had previously travelled through the area, Canal Flats did not start developing as a permanent community until 1929 when workers came to the area to cut ties for the Canadian Pacific Railway.

Today, Canal Flats is a place where one can view Rocky Mountain bighorn sheep and deer roaming the streets. Canal Flats offers a variety of amenities, such as a public beach, arena, curling rink, golf course and parks. Not far from the Canal Flats Provincial Park are the remains of the canal, completed in 1889, which connected Columbia Lake with the nearby Kootenay River, hence the name Canal Flats given to the post office in 1913.

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