I have passports from both the U.S.A. and Canada. I understand that a federal law forbids me to leave the U.S.A. without my U.S. passport. Some conflicting statements have appeared in various internet discussions: (1) the law says I must "present" my passport when leaving; versus (2) the law says I must have my passport in my possession when leaving (but stops short of saying I must show it to anyone). Suppose I drive across the border into Canada and a CBP officer, asking to see a passport, looks at my Canadian passport (suppose my U.S. passport is in the trunk of the car and my Canadian passport is in my pocket). If the officer sees that my place of birth is reported to be "GRAFTON, U.S.A." (that's what it says) would I then (1) be asked to present my U.S. passport, or (2) be asked whether I have my U.S. passport with me (but not asked to show it), or (3) other (specify).
4 Answers
The US law (8 USC 1185(b)) says this:
Except as otherwise provided by the President and subject to such limitations and exceptions as the President may authorize and prescribe, it shall be unlawful for any citizen of the United States to depart from or enter, or attempt to depart from or enter, the United States unless he bears a valid United States passport.
You don't have to present it to anyone unless asked to, but the US law does require you to have it when traveling internationally.
22 CFR 53.2 lists several exceptions, some are relevant specifically to travel to Canada (using trusted traveler program cards, passport cards, etc, as substitute).
Usually, entry controls require documentation which establishes your right to enter. So when crossing into Canada - show the Canadian documents, when crossing into the US - show the US documents. Neither have direct exit controls (i.e.: you don't personally go through immigration control when leaving, as opposed to many other countries).
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Just keep both passports at hand and when stopped by USA officials show the USA passport and when stopped by Canadian officials show the Canadian passport. If either has questions which are easiest answered by showing both passports do so.
This is practical information, not about the letter of the law. But officials at the border are also just human and prefer you to keep it simple if you can.
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The other answers by littleadv and Willeke are correct. I am adding this answer to address the practical questions:
would I then (1) be asked to present my U.S. passport, or (2) be asked whether I have my U.S. passport with me (but not asked to show it), or (3) other (specify).
Assuming that the "CBP officer" is an officer of the US bureau of Customs and Border Protection, in which case this encounter would occur before you reach Canadian territory, anything really could happen.
The officer could ask whether you have your US passport and could choose to believe that it is in the trunk or could demand that you retrieve it from the trunk and show it. Which of these is more likely depends on the the reason for the stop. For example, if they're trying to prevent a fugitive from fleeing the country, they're convinced that you aren't the fugitive, they find your statement credible, and they are pressed for time, they will probably leave it. If, in the other hand, they are not pressed for time, or they want to see what's in your trunk (but don't have probable cause for a search), or they are just particularly officious, they will more likely demand to see the passport.
While there is no penalty for a US citizen who leaves the US without a US passport in violation of 8 USC 1185(b), the fact that it is "unlawful" does provide a basis for the officer to prevent you from proceeding across the border. I don't know whether the judiciary has ever ruled on this, but I've seen at least one report of a US citizen being prevented from boarding a flight by departure control officers at the boarding gate. The fact that they could prevent your departure doesn't necessarily mean that they would do so, of course, but it does also give them a mechanism to induce you to produce the US passport.
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USA-Canada border might be a special case due to various agreements facilitating movement across the border, just like free movement in European Union or Shengen area. In general, however, a passport has to do with the rights/obligations in respect to the country issuing it. The citizens of a country are typically supposed to use their national passport when entering or leaving the country in question, though the punishment for non-compliance is different in different parts of the world (from mild reprimand to fines and imprisonment.) Thus, dual citizens moving from one country of citizenship to another one are supposed to show, e.g., their US passport when exiting the US, and their French passport when entering France. Being able to use a foreign passport when leaving one's country of citizenship could easily result in abuses - e.g., like misstating one's residence time in a tax return or fleeing legal obligations or prosecution.
Airlines often demand to see passports/visas for the destination country at the point of the departure, to assure that they would not have to deal with repatriation, in case the person is denied entry at the destination. The border officers may also ask to show one's "other passports" as a matter of a routine check or if they have some doubts or suspicions. While a Canadian border officer likely cannot demand a Canadian citizen to show their US passport, they may deny entry for another reason, while presenting the passport could have easily resolved the issue.
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