The Western Hemisphere Travel Initiative (WHTI), designed to protect national borders, has laid out specific passport requirements for traveling between the United States and Canada. Here's how they boil down.
Canadians Entering the United States
Canadian citizens must have one WHTI-approved document (see section X, WHTI Approved Documents). Your fingerprint and photo may be taken upon entry, and you may need to fill out a Form I-94 which you will return when you leave the country.
U.S. Citizens Entering the United States
As of June 1 2009, Americans flying to the U.S. will need a passport to board their plane.
Americans entering the U.S. by land or sea must have a government-issued passport, passport card or other WHTI-approved document (see section 5 for a list of documents).
U.S. Citizens Entering Canada
You may be asked for your passport and/or visa when crossing the Canadian border, but a passport is not necessary to enter Canada. You should bring proof of citizenship (birth certificate, Certificate of Citizenship or Naturalization, green card) and photo identification.
Canadians Entering Canada
When traveling by land, proper identification (Canadian birth certificate, passport or citizenship card, or a Certificate of Indian Status) is needed to reenter Canada.
A passport may be required to board a plane flying to Canada; it is strongly recommended that all Canadian citizens traveling abroad carry passports.
Children Under 16 and School Groups
Children under 16 entering the United States or Canada may present a birth certificate, Consular Report of Birth Abroad, a Naturalization Certificate, or a Canadian Citizenship Card.
Students under 19, traveling in supervised groups with parental consent, may present the same identification listed above, in addition to an official letter presented by the group.
WHTI Approved Documents
Passport -- An internationally recognized travel document that verifies identity and nationality.
U.S. Passport Card -- A limited-use travel document that costs less than a U.S. Passport. Valid for travel by land and sea.
Enhanced Driver's License (EDL) -- A driver's license or identification document that denotes identity and citizenship, specifically designed for travel into the U.S. by land or sea.
Trusted Traveler Program Cards -- NEXUS, SENTRI or FAST enrollment cards are issued only to pre-approved, low-risk travelers. Valid for use at land or sea.
Special Groups -- Certain additional documents can be used as proof of citizenship, including a Certificate of Indian Status.