Volcanic rocks along the Panama Canal present a world-class opportunity to examine the relationship between arc magmatism, tectonic forcing, wet and dry magmas, and volcanic structures. Major and trace element geochemistry of Canal volcanic rocks indicate a significant petrologic transition at 21–25 Ma. Oligocene Bas Obispo Fm. rocks have large negative Nb-Ta anomalies, low HREE, fluid mobile element enrichments, a THI of 0.88, and a H2Ocalc of >3 wt. %. In contrast, the Miocene Pedro Miguel and Late Basalt Fm. exhibit reduced Nb-Ta anomalies, flattened REE curves, depleted fluid mobile elements, a THI of 1.45, a H2Ocalc of <1 wt. %, and plot in mid-ocean ridge/back-arc basin fields. Geochemical modeling of Miocene rocks indicates 0.5–0.1 kbar crystallization depths of hot (1100–1190°C) magmas in which most compositional diversity can be explained by fractional crystallization (F = 0.5). However, the most silicic lavas (Las Cascadas Fm.) require an additional mechanism, and assimilation-fractional-crystallization can reproduce observed compositions at reasonable melt fractions. The Canal volcanic rocks, therefore, change from hydrous basaltic pyroclastic deposits typical of mantle-wedge-derived magmas, to hot, dry bi-modal magmatism at the Oligocene-Miocene boundary. We suggest the primary reason for the change is onset of arc perpendicular extension localized to central Panama. High-resolution mapping along the Panama Canal has revealed a sequence of inward dipping maar-diatreme pyroclastic pipes, large basaltic sills, and bedded silicic ignimbrites and tuff deposits. These volcanic bodies intrude into the sedimentary Canal Basin and are cut by normal and subsequently strike-slip faults. Such pyroclastic pipes and basaltic sills are most common in extensional arc and large igneous province environments. Overall, the change in volcanic edifice form and geochemistry are related to onset of arc perpendicular extension, and are consistent with the idea that Panama arc crust fractured during collision with South America forming the observed Canal extensional zone.