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Yes, there really was a canal at Canal Street. It existed until 1821 when it became so polluted and disease ridden, that the city had to drain it. There is an illustration of the canal in the book, "History of the City of New York: Its Origin, Rise and Progress," published in 1877. It's caption reads, "It resulted finally in a street one hundred feet wide with a ditch or open canal in its center bordered with shade trees, upon either side of which was a broad drive lined with habitations

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Q: Is it true that Canal Street in New York City is named because it lies on top of an old canal?
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