The story of Lancaster is directly linked to that of the Humboldt Canal (see Mill City). The townsite was laid out during the spring of 1863 at the southern terminus of the canal, with its own segment called the 'Lancaster Canal' or 'Lancaster Tunnel' intended to bypass a wide horseshoe bend in the Humboldt River and, equipped with a dam, provide a fall of around 20' to power a new 40-stamp mill for area silver mines. Work progressed on both ends of the Lancaster Canal, and by August some 200 people lived in the townsite, sixteen of which were women. 100 lots were apparently sold, and Lancaster had stores, saloons, a lumberyard, and plans for fine adobe homes. The grand plans for Lancaster were never realized, however, as the Humboldt Canal failed and mining nearby diminished. A survey map from 1864 shows only a canvas hotel, blacksmith shop, and the line of the (unfinished) 'Lancaster Tunnel' at the site, and by the next year Lancaster was completely deserted.