Seasonal circulation and three‐dimensional thermohaline structure within the Panama Bight are examined by employing satellite‐derived sea surface winds and dense in‐situ hydrographic datasets. The northerly Panama wind jet, associated with a dipole structure of wind stress curl that is positive (negative) on its eastern (western) flank, dominates the bight in winter. This wind jet generates a cyclonic eddy with mean geostrophic velocities of 60 cm s −1 , including the poleward flowing coastal Colombia Current, and induces a well pronounced thermocline dome. As a result, temperature (salinity) in the bight is much colder (saltier) than in its surrounding waters. Winds blow from southwesterly directions in summer and the bight is dominated by an anticyclonic eddy associated with a thermocline bowl. Mean geostrophic velocities are on the order of 40 cm s −1 and the Colombia Current is not observed. Temperature (salinity) in the bight is much warmer (fresher) than in its surrounding waters.