Tectonic collision between South America and Panama began at 23–25 Ma. The collision is significant because it ultimately led to development of the Panamanian Isthmus, which in turn had wide-ranging oceanic, climatic, biologic, and tectonic implications. Within the Panama Canal Zone, volcanic activity transitioned from hydrous mantle-wedge−derived arc magmatism to localized extensional arc magmatism at 24 Ma, and overall marks a permanent change in arc evolution. We interpret the arc geochemical change to result from fracturing of the Panama block during initial collision with South America. Fracturing of the Panama block led to localized crustal extension, normal faulting, sedimentary basin formation, and extensional magmatism in the Canal Basin and Bocas del Toro. Synchronous with this change, both Panama and inboard South America experienced a broad episode of exhumation indicated by (U-Th)/He and fission-track thermochronology coupled with changing geographic patterns of sedimentary deposition in the Colombian Eastern Cordillera and Llanos Basin. Such observations allow for construction of a new tectonic model of the South America–Panama collision, northern Andes uplift and Panama orocline formation. Finally, synchroneity of Panama arc chemical changes and linked uplift indicates that onset of collision and Isthmus formation began earlier than commonly assumed.