Do not bother with rental cars for travel within Panama City  or any other urban area. It’s far easier, cheaper, and more convenient to take taxis. But renting a car is a reasonable option for longer trips. Note there is a standard charge of US$180 to drop a car off in a different city from the one you rented it in.
Visitors can drive in Panama  for 90 days with a driver’s license from their home country; there’s no need to get an international or Panamanian driver’s license or permit. Be prepared to present both your driver’s license and passport if stopped by the transit police for any reason.
Two kinds of insurance are obligatory when driving a rental car in Panama. Different rental companies call them by different names, but they’re essentially collision and robbery insurance (called something like cobertura de colisión y robo and comparable to collision damage waiver—CDW—in the United States) and insurance against liability for harm to third parties (called something like cobertura de daños a terceros o responsabilidad civil or suplemento de seguro de responsabilidad contra terceros).
Other kinds of insurance are optional. Your credit card, home auto insurance, or travelers’ insurance may include some car-rental protection, but be sure to check ahead of time that it covers driving in Panama. When I have to rent a vehicle in Panama, I err on the side of too much rather than too little insurance.
Drivers and passengers are required by law to wear seatbelts. Cars are not yet required to have airbags, so ask if your car has them.
It’s against the law to drive while talking on a cell phone. If you need to make a call, pull over. It’s also illegal to drive without a shirt—seriously, you’ll get ticketed for this.
Rental car agencies in Panama do not allow customers to take cars out of the country. Visitors are allowed to drive foreign-registered vehicles within Panama for up to 90 days.
Panama’s streets are increasingly choked with enormous SUVs, so consider that when contemplating renting a subcompact car. For some more remote, rugged areas, a four-wheel-drive vehicle with high clearance is a must to navigate rough, rocky dirt roads and small streams. In the rainy reason, some roads will be impassable no matter what you’re driving.
Four-wheel drives are popular, so be sure to make a reservation for these well ahead of time. If you’re unused to driving these vehicles, bear in mind many have a high center of gravity and it’s disturbingly easy to flip them over on sharp turns or when dodging road obstacles, both of which pop up often on Panama’s roads.
Four-wheel drives are known in Panama as cuatro por cuartos (four by fours), vehículos con doble traccion (vehicle with double traction), or simply dobles.
Rental cars are most widely available in Panama City , but they can also be found in David  and a few other places. In Panama City, the highest concentration of offices is in the Vía España area, though there are branches dotted around the city and at the international airport.
Rates are about the same and sometimes cheaper than they are in the United States, and promotions are often available, including packages that combine a car rental with domestic flights and/or hotel stays. These can be great deals.
The major companies are Hertz (www.hertz.com ), Avis (www.avis.com ), Thrifty (www.thrifty.com ), Dollar (www.dollar.com ), Alamo (www.alamo.com ), National (www.nationalcar.com ), and Budget (www.budget.com ). Which company is best changes so rapidly, depending on current local management, it’s impossible to recommend one over another.
Vehicles rented in Panama City should be reasonably well-maintained. Outside the capital things are dicier. I once rented a car in David from a major U.S. agency and was presented with a muddy old clunker.
Panama  has three toll highways: the Corredor Norte, the Corredor Sur, and the Autopista Arraiján–La Chorrera.
The Corredor Sur links Tocumen International Airport and central Panama City . The Corredor Norte extends north from Panama City across the isthmus toward Colón . Both of these latter highways were begun in the 1990s and are still works in progress to some degree. The Corredor Norte is being extended to Sabanitas, not far from Colón.
Tolls on the corredores are based on distance driven, the amount collected in increments at toll plazas along the way. Payments are made in cash or through an electronic debit system that only regular commuters bother with. Most tolls are around US$1 or less.
The Autopista Arraiján–La Chorrera, completed in 1981, is Panama’s oldest toll road. It’s on the Interamericana west of Panama City. The toll plaza is about 30 kilometers west of Panama City. The toll for a passenger car is US$0.50.
Tolls on all three highways are collected in either direction. Take the receipt the attendant hands you and hold onto it until you exit the highway. Tolls are higher for larger vehicles.
Among the many road obstacles intrepid drivers are likely to encounter on the back roads of Panama are suicidal chickens. Chickens are definitely free range in the countryside, and they have a way of blundering out into the road with no notice.
If you hit one, you are expected to find the owner and pay him or her for the pummeled poultry. Seriously. Make the effort to do the right thing, since for many people chickens are an important means of subsistence.
The going rate is US$5 per befouled fowl. You are, of course, then welcome to take the roadkill with you, if you have a means of preparing it. More likely you’ll turn the deceased over to the grieving farmer.
Also be on the lookout for dogs—an alarming number of them have only three legs due to tangles with traffic.