The Newry Canal was built to transport the newly discovered coal near Coalisland, Tyrone for the merchants of Dublin (via Lough Neagh and the River Bann) to the Irish Sea at Carlingford Lough near Newry. It was the first summit-level canal to be built in the British Isles since Roman times. It was constructed between 1731 and 1742, pre-dating the more famous Bridgewater Canal by nearly thirty years. The pioneering engineer was a German immigrant named Richard Cassels he was replaced by an English engineer named Thomas Steers.

The 20 mile canal had 14 locks, nine of them to the south of the summit, which is 29 m (94 ft) above the level of Carlingford Lough. The locks are 13 m (44 ft) long and 5 m (15 ft 6 in) wide and could accommodate boats of up to 120 tonnes. They were 3.6 to 4 m(12 to 13 ft) deep and each lock was faced with stone from the Benburb quarries early in the 1800s after the original brick sides began to crumble.

As the Lower Bann drains Lough Neagh north into the Atlantic Ocean and the Newry Canal (with a bit of the Upper Bann) connects it south to the Irish Sea, the whole system taken as a whole can be conceived speculatively and imaginatively to cut off the old Counties Down and Antrim as an island separate from the rest of Ireland.

This was a successful navigation, Newry being the fourth most important port in Ireland. Over time other commodities as well as coal were carried including agricultural goods, tobacco, timber, iron goods, whiskey and oil products.

With the coming of the railways in the 1850s, the canal went into decline, and finally closed to commercial traffic in the late 1930s. Some sections have steadily fallen into a state of disrepair since then. Although most of the lock gates have long since rotted away, many of the locks themselves are in excellent condition, being constructed from local granite. It is now overgrown for much of its length; however, this means that it is now a haven for wildlife, and with the construction of broad paths is enjoying a renaissance, with many families and individuals using these for walking and cycling.

It's ironic that the railway, which runs alongside the canal, was a factor in leading to its demise. The last vessel to sail the canal was a pleasure yacht in 1937.