The economy of Odisha was mostly depended on agriculture since time immemorial. The agricultural practice was very primitive and traditional. During colonial rule also the cultivators of Odisha used the same agricultural practices. The success of agricultural production largely depended on favourable rainfall. Low rainfall creates drought situation leading to agricultural failure. In 19th century, Odisha suffered from repeated drought and famine condition. The farmers were depended on ponds, wells, stream etc. with some traditional method of irrigation system which was not sufficient to meet the drought situation. There was no improved irrigation system or canal irrigation till 1866. It was only after the famine of 1866 the Colonial government undertook some canal irrigation projects. In this paper an attempt has been made to study in details, the development of canal irrigation system in Odisha during colonial rule and how it was helpful to irrigate a larger area of land for development of agriculture. For this study I have used some contemporary reports collected from archives and some books and articles.