In 1821 the isthmus joined with present Venezuela, Colombia and Ecuador to form 'Gran' or Greater Colombia; this territory more or less corresponded to the old colonial administrative district called the Viceroyalty of New Granada. Panama became its Department of the Isthmus, under a number of successive governors.

In September of 1830, under the guidance of General José Domingo Espinar, the local military commander who rebelled against the nation's central government in response to his being transferred to another command, Panama separated from Greater Colombia and requested that general Simón Bolívar take direct command of the isthmus department. It made this a condition to its reunification with the rest of the country. Bolívar rejected Espinar's actions, and though he did not assume control of the isthmus he desired and called for Panama to rejoin the central state. Because of the overall political tension, Greater Colombia's final days were approaching. Bolívar's vision for territorial unity disintegrated finally when General Juan Eligio Alzuru undertook a military coup against Espinar's authority. By early 1831 with order restored, Panama had reincorporated itself to what was left of Greater Colombia, which had adopted the name of Republic of New Granada.

In the 1840s, two decades after the Monroe Doctrine declared U.S. intentions to be the dominant imperial power in the Western Hemisphere, North American and French interests became excited about the prospects of constructing railroads and/or canals through Central America to quicken trans-oceanic travel. In 1846, the United States and Colombia signed the Bidlack Mallarino Treaty, granting the U.S. rights to build railroads through Panama, as well as the power to militarily intervene against revolt to guarantee Colombian control of the isthmus. The world's first transcontinental railroad, the Panama Railway, was completed in 1855 across the Isthmus from Aspinwall/Colón to Panama City.[1] From 1850 until 1903, the United States used troops to suppress independence revolts and quell social disturbances several times, creating a long-term animosity among the Panamanian people against the US military. The first such conflict was known as the Watermelon War of 1856, where white U.S. soldiers mistreated locals causing large-scale race riots that U.S. Marines eventually put down.

Under a federalist constitution that was later brought up in 1858 (and another one in 1863), Panama and other constituent states gained almost complete autonomy on many levels of their administration, which led to an often anarchic national state of affairs that lasted roughly until Colombia's return to centralism in 1886 with the establishment of a new Republic of Colombia.

As was often the case in the new world after independence, the local administrative and political structures were controlled by the remnants of the colonial aristocracy. In the case of Panama, this elite was constituted by a group of under ten extended families. Though Panama has made enormous advances in social mobility and racial integration, it is still true that much of Panama's economic and social life is controlled by a small number of families. The derogatory term rabiblanco ("white tail"), of uncertain origin, has been used for generations to refer to the usually Caucasian members of the elite families.

In 1852 the isthmus would adopt trial by jury in criminal cases and -- 30 years after abolition -- would finally declare and enforce an end to slavery. In 1855, the first Transcontinental railway of the New World, the Panama Railway, was built across the isthmus from Colón to Panama City to transport fortune hunters who wanted quick passage to the gold fields of California. The existence of the railroad made speculation about a Panamanian canal feasible.