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A penal colony is a colony used to detain prisoners and generally use them for penal labor in an economically underdeveloped part of the state's (usually colonial) territories, and on a far larger scale than a prison farm. The most well known was Devil's Island in French Guiana. The British Empire used its colonies in North America for almost 150 years and then parts of Australia for a further 75 years.

The prison regime was often harsh, sometimes including severe physical punishment, so even if prisoners were not sentenced for the rest of their natural lives, many died from hunger, disease, medical neglect and excessive efforts, or during an escape attempt.

In the penal colony system, prisoners were sent far away to prevent escape and to discourage returning after their sentence expired. Penal Colonies were often located in frontier lands, especially the more inhospitable parts, where their unpaid labour could benefit the metropoles before immigration labor became available, or even afterwards where they are much cheaper; in fact sometimes people (especially the poor, following a similar social logic as could see them domestically 'employed' in a poorhouse) were sentenced for trivial or dubious offenses to generate cheap labor.

The British used North America as a penal colony both in the usual sense and through the system of indentured servitude. Most notably, the Province of Georgia was originally designed as a penal colony. Convicts would be transported by private sector merchants and auctioned off to plantation owners upon arrival in the colonies. It is estimated that some 60,000 British convicts were sent to colonial America, representing perhaps one-quarter of all British emigrants during the eighteenth century.^{[citation needed]}

When that avenue closed in the 1780s after the American Revolution, Britain began using parts of modern day Australia as penal colonies. Some of these early colonies were Norfolk Island, Van Diemen's Land and New South Wales. Advocates of Irish Home Rule or of Trade Unionism (the Tolpuddle Martyrs) often received sentences of deportation to these Australian colonies.^{[citation needed]}

In colonial India, the British had made various penal colonies. Two of the most infamous ones are on the Andaman islands and Hijli.

• During the Argentine rule of the the Falkland/Malvinas Islands Major Esteban Mestivier was commissioned by the Buenos Aires government, as the new governor of the islands, to set up a penal colony. He arrived at his destination on November 15, 1832 but his soldiers mutinied and killed him. Lt. Col. José María Pinedo quelled the rebellion and took charge as governor. Argentinas southermost city Ushuaia was founded as a penal colony.
• France sent criminals to tropical penal colonies. Devil's Island in French Guiana, 1852 - 1939, received forgers and other criminals. New Caledonia in Melanesia (in the South Sea) received dissidents like the Communards, Kabyles rebels as well as convicted criminals.
• In Ecuador, the Island of San Cristobál (in the Galapagos archipelago) was used as a penal colony 1869 - 1904.
• Both Imperial Russia and the Soviet Union used Siberia as a penal colony for criminals and dissidents. Though geographically contiguous with heartland Russia, Siberia provided both remoteness and a harsh climate. In 1857, a penal colony was established on the island of Sakhalin. The Gulag and its tsarist predecessor, the katorga system, provided slave-type penal labor to develop forestry, logging and mining industries, construction enterprises, as well as highways and railroads across Siberia.
• The Netherlands had a penal colony since the late 1800s. A town called Veenhuizen, originally set up to "re-educate" vagrants from the large cities in the west like Amsterdam, by a private company; it was taken over by the Department of Justice to be turned into a collection of prison buildings. The town is located in the least populated province of Drenthe in the north of the country, isolated in the middle of a vast area of peat and marshland.
• Currently in Mexico, the island of María Madre (in the Marías Islands) is used as a penal colony. With a small population (less than 1200), the colony is governed by a state official who is both the governor of the islands and chief judge. The military command is independent of the government and is exercised by an officer of the Mexican Navy. The other islands are uninhabited.
• Tarrafal was a Portuguese penal colony in the Cape Verde Islands, set up by the head of the Portuguese government, Salazar, before WWII (1936) where anti-fascist opponents of this right-wing regime were sent. At least 32 Anarchists, Communists and other opponents of Salazar's regime died in that camp. The camp was closed in 1954 but was re-opened in the 1970s to jail African leaders fighting Portuguese colonialism.
• Taiwan had a penal colony at Green Island during Chiang Kai Shek's White Terror.

• In the Penal Colony is a short story by Franz Kafka upon which the movie Colonia penal, La (1970) is based.
• More than one of Patrick O'Brian's Aubrey-Maturin series, including Desolation Island and The Nutmeg of Consolation include scenes set in and around New South Wales.
• "For the Term of His Natural Life" by Marcus Clarke is a 19th Century novel dealing with the main characters deportation to the Port Arthur penal colony in Hobart, Australia in 1830. There are several movie versions, such as the 1983 TV movie starring Colin Friels.
• "Morgan's Run" by Colleen McCullough is a 20th Century novel dealing with the main characters deportation to the Australian penal colony.
• "Our Country's Good" a play by Timberlake Wertenbaker, focuses on the story of deportees to a penal colony.
• "Papillon" is the title of Henri Charriere's 20th Century inautobiographical novel concerning a Frenchman interned on a penal colony in French Guiana, and the 1973 movie directed by Franklin J. Schaffner.

The concept of remote and inhospitable prison planets has been employed by science fiction writers. Famous examples include:

• Kessel, a prison planet which specialized in spice mining in the Star Wars universe.
• Robert Sheckley's Omega
• Salusa Secundus in Frank Herbert's Dune,
• Fiorina 'Fury' 161, the penal colony in Alien³ that was an abandoned leadworks,
• The CoDominium series of Jerry Pournelle showed several planets, such as Tanith, Haven and Sparta, that were used as dumping grounds for criminals and dissidents,
• Rura Penthe, a Klingon colony where prisoners mine dilithium in the Star Trek universe,
• The Doctor Who serial Frontier in Space features a lunar penal colony in the 26th century; a lunar penal colony of the 2002nd century is also mentioned in the episode "Bad Wolf",
• In several episodes the TV series Stargate SG-1, whole planets are used as penal colonies, generally by the goa'uld, e.g. Hadante in episode 25 (season 2)
• Crematoria is the sun scorched prison planet in The Chronicles of Riddick,
• "Hawksbill Station" by Robert Silverberg is a 1970 novel where political prisoners are sent to the pre-Cambrian period via a one-way time travel machine.
• The Moon in Robert A. Heinlein's novel The Moon Is a Harsh Mistress
• The planet Shayol appears in Cordwainer Smith's stories.
• In episode 1-2 Trust of the Starhunter series, the planet Mercury is a fully automated prison.