At the time of construction known as the Collins Canal, this six-mile canal is the oldest of the six larger canals connecting Lake Phelps with the Scuppernong River in Tyrrell County, North Carolina. It was completed by a shipload of African slaves that had been purchased and brought directly over just for this effort.

The canal was used for navigation as well as for draining the nearby swamplands, where rice and later corn was grown, and the fall at the lake was used to power machinery for Somerset Place, which was owned by the Collins family. This plantation was the third largest in North Carolina at the time (circa 1830). Over time, the nearby canal began to be called the Somerset Canal, which is the current name.

In 1784, a group of men from Halifax and Edenton, North Carolina received authorization from the General Assembly to drain Lake Phelps—known to be higher than the surrounding land—and farm its fertile bottom. The group also made a survey revealing some 10,000 acres of adjacent rich swampland as higher in elevation than the Scuppernong River, some six miles away. Construction of an irrigation system, they reasoned, might make the swamp suitable for rice cultivation. About the same time two Edenton members of the association, businessman Nathaniel Allen and Samuel Dickinson, took Josiah Collins, also of Edenton, into a second partnership known as the Lake Company. This organization soon acquired over 100,000 acres of land in the area, and apparently superseded the first group. Collins himself held an additional 60,000 acres east of the lake on the Alligator River.

Although each member of the Lake Company was one of Edenton's most prominent citizens, Josiah Collins (1735-1819) proved to be the most important of the three in subsequent activity at the lake. Collins had come to the colonies in 1773 and settled in Edenton in 1774, where he became a prosperous merchant, shipper, and manufacturer of rope. His son, Josiah Jr. (1763-1839) joined him in his various businesses.

The partnership of the Lake Company hinged upon a verbal agreement in 1784 for acquiring land near Lake Phelps and digging a canal from the lake to the Scuppernong River to facilitate transportation and drainage of the land. Collins went to Boston to fit out a slave ship that would sail to West Africa. This vessel returned in early 1786 with about 100 enslaved Africans. These slaves were immediately put to work on the canal, and they finished its six-mile straight course—with a width of 20 feet and a depth of four to six feet—in 1788.

The waterway linking the lake and the river served numerous purposes, and was perhaps the prime factor in the conversion of swampland around the northern shore of Lake Phelps to productive fields. By means of a system of cross ditches and a water gate, the canal could drain or flood the new fields below the lake as necessary for the cultivation of rice and other staples. The canal, with a road built upon its bank, provided a means of transportation via flatboat, horse, and wagon. All incoming heavy freight at the plantation arrived by the ditch. This waterway also furnished power at a point perhaps a quarter of a mile from the lake. A sluiceway and millrace enabled a six-foot head of water to turn waterwheels running sawmills, a gristmill, and other machinery. At the same point a complex of barns and other buildings was erected. The company paid Thomas Trotter, a Scotsman and mechanic, to serve as engineer in charge of the technical aspects of drainage, irrigation, and machinery.

Within a decade, the Lake Company made considerable progress at the plantation. Some one hundred dwellings for overseers and slaves were built, along with a number of additional mills and barns. Rice and wheat became primary crops, while lumber, staves, and shingles were other important products.