There was light voter turn-out for the poll which will decide if the $5 billion modernisation project is to go ahead, just 35 to 40 percent of eligible people took part - a figure consultants credited with a lack of enthusiasm for building a third set of locks to allow oil tankers to travel through the canal.
But the latest opinion polls indicate that the referendum will pass, with about 70 percent of voters expected to back the measure.
President Martin Torrijos and the Panama Canal Authority, the government agency that has run the waterway since it was handed over to Panama by the United States in 1999, insist that the project is vital.
They argue that without it, the 92-year-old waterway would become obsolete after 2012.
"Panama is betting on its future," said Mr Torrijos after casting his vote. "This could be the most important decision that this generation is called upon to make," he added.
About 80 percent of the gross domestic product of Panama, a small country of three million people, is linked directly or indirectly to canal activity. Its main users are the United States, China and Japan.
It takes approximately nine hours to cross the Isthmus of Panama, the tiny middle of the Americas, via the 80 kilometre canal, but the actual average time, including the wait, is 26 hours.
Proponents say the canal, through which roughly four percent of world trade flows, badly needs an overhaul to accommodate larger ships and remain competitive against other maritime routes.
The largest size of ship which can use the canal is known as a Panamax, but increasingly modern vessels cannot fit, these are known as Post Panamax ships, they must travel around Cape Horn at the southern tip of South America to connect to ports on the east and west of the Americas.
The canal’s proposed third lane, which would be parallel to the existing two would accommodate these massive vessels.
If approved, construction is scheduled to begin in late 2007 and expected to be completed seven years later.
Former president Jorge Illueca and the former canal administrator Fernando Manfredo have published a report which criticized the project as costly, unnecessary and risky.
Opponents of the expansion argue that there is no urgent need to undertake such a large investment and that instead the country should dedicate itself to fighting poverty, which affects 40 percent of the population.
But the government sees the canal as a means to combat poverty, Mr Torrijos says because it is the country’s top money maker its benefits trickle down not only to the rich, but also the humblest Panamanians.
The government says the work would be financed by a hike in tolls, worth more than $1 billion dollars last year.