The "Fanny" was originally operated by the United States Army Quartermaster Corps. On August 3, 1861, while on the James River, balloonist John La Mountain made an ascent from the deck of the "Fanny" to observe Confederate positions, making the "Fanny" a balloon carrier. Previous water-launched balloon flights had taken place on barges. "Fanny" was armed with a 4.62-inch Sawyer rifle forward (Described as a "32-pounder", based on projectile weight, by Confederates after her capture) and with an 8-pounder rifled cannon (possibly another Sawyer design) aft, and was active against Confederate shore positions. It was also part of the Battle of Hatteras Inlet Batteries, the initial invasion of the North Carolina Outer Banks by the Union on August 28–29, 1861. At some later time "Fanny" was commanded by a Lieutenant Crosby and reported the capture of the blockade runner "Mary Emma" at the headwaters of the Manokin River in Maryland.