The James River Company was formed by the state of Virginia in 1785 to develop a water route from Richmond over the Allegheny Mountains to the Ohio River. Encouraged by George Washington after his 1784 exploratory trip into the Ohio Valley and up the Kanawha River, the original plans included improvements to allow navigation past the falls of the James at Richmond; a turnpike across the mountains from the upper James to the Kanawha Valley; and improvements to the Kanawha River to its junction with the Ohio. Eventually, it was planned to build a continuous canal across the mountains, linking the two great rivers.

The project was started in 1820 with canal work on the lower James. The state-owned James River Company was reorganized as a stock company in 1835 and named the James River & Kanawha Company. A road, the James River & Kanawha Turnpike, was constructed from Covington to the falls of the Kanawha near Gauley Bridge and then on to the mouth of the Big Sandy River at the Ohio. Construction of the canal on the James River was completed by 1840 between Richmond and Lynchburg and by 1851 had been extended to the town of Buchanan, northeast of present Roanoke.

While the work was being done on the James, the Kanawha River was improved by clearing channels, dredging, and building wing dams. Although the Civil War brought the project to a halt, work resumed as soon as the conflict was over.

The James River & Kanawha Canal later became the focal point of a grand proposed waterway that would link the Tidewater regions of Virginia with the foothills of the Rocky Mountains. This route, proposed to Congress by West Virginia founder Waitman T. Willey and an Ohio colleague in 1870 and known as the Central Water Line, would follow the James River & Kanawha Canal to the Ohio River, then down the Ohio to the Mississippi River, up the Mississippi to the Missouri River, and finally up the Missouri to the Kansas River to the Rocky Mountains. This route never materialized because of the improving railroad and road systems following the Civil War.

The James River & Kanawha Company continued to operate the Virginia portion of the canal while competing with the developing railroad systems. In November 1877, a severe flood hit the James River Valley doing great damage to the canal system. On March 5, 1880, the James River & Kanawha Company ceased operations and went out of business.