Located on the northern part of the Isthmus of Panama, it has a deep natural harbor and was used as a center for silver exporting before the mid-eighteenth century and destruction in the War of Jenkins' Ear.

It slowly rebuilt and the city's economy revived briefly in the late nineteenth century during construction of the Panama Canal. In 1980 the ruins of the Spanish colonial fortifications, along with nearby Fort San Lorenzo, were designated as a UNESCO World Heritage Site, named Fortifications on the Caribbean Side of Panama: Portobelo-San Lorenzo.