The 31-year-old American was shown on television taking a phone call on the driving range before the start of his third round and immediately left the golf course.
"I received exciting news a short time ago that my wife Kandi has gone into labour with our first child," said Mahan in a statement. "As a result, I have withdrawn from the Canadian Open to return to Dallas.
"Kandi and I are thrilled about this addition to the Mahan family and we look forward to returning to the Canadian Open in the coming years."
Mahan, the winner of five US Tour titles, had shot to the top of the leaderboard with a second round eight-under 64 on Friday good enough for a two-stroke advantage on John Merrick.
Dustin Johnson, who was among the early starters at a rainy Glen Abbey Golf Club, took Mahan's spot at the top the leaderboard, firing a nine-under 63 to join Merrick at 11-under.
"It's good thing that he is going because he is having his first kid and obviously there is no reason why he wouldn't go," Johnson told reporters.
"It's unfortunate that he had to leave, I played with him the last two days and he was playing wonderful golf."
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