diff --git a/doc/source/release.rst b/doc/source/release.rst
index 6e74e2c68e44e..06f6b64c93061 100644
--- a/doc/source/release.rst
+++ b/doc/source/release.rst
@@ -63,6 +63,7 @@ Highlights include:
 - Development support for benchmarking with the `Air Speed Velocity library <https://github.com/spacetelescope/asv/>`_ (:issue:`8316`)
 - Support for reading SAS xport files, see :ref:`here <whatsnew_0170.enhancements.sas_xport>`
 - Removal of the automatic TimeSeries broadcasting, deprecated since 0.8.0, see :ref:`here <whatsnew_0170.prior_deprecations>`
+- Deprecated ``filter_observations`` by ``dropna`` in ``Panel.to_frame`` and changed default to ``True`` (:issue:`7879`)
 
 See the :ref:`v0.17.0 Whatsnew <whatsnew_0170>` overview for an extensive list
 of all enhancements and bugs that have been fixed in 0.17.0.
diff --git a/pandas/core/panel.py b/pandas/core/panel.py
index 1293b4034b84e..5e24d765ca5c5 100644
--- a/pandas/core/panel.py
+++ b/pandas/core/panel.py
@@ -862,7 +862,8 @@ def groupby(self, function, axis='major'):
         axis = self._get_axis_number(axis)
         return PanelGroupBy(self, function, axis=axis)
 
-    def to_frame(self, filter_observations=True):
+    @deprecate_kwarg(old_arg_name='filter_observations', new_arg_name='dropna')
+    def to_frame(self, dropna=False):
         """
         Transform wide format into long (stacked) format as DataFrame whose
         columns are the Panel's items and whose index is a MultiIndex formed
@@ -870,7 +871,11 @@ def to_frame(self, filter_observations=True):
 
         Parameters
         ----------
-        filter_observations : boolean, default True
+        dropna : boolean, default False
+            Drop (major, minor) pairs without a complete set of observations
+            across all the items
+
+        filter_observations : boolean, default False, [deprecated]
             Drop (major, minor) pairs without a complete set of observations
             across all the items
 
@@ -880,7 +885,7 @@ def to_frame(self, filter_observations=True):
         """
         _, N, K = self.shape
 
-        if filter_observations:
+        if dropna is True:
             # shaped like the return DataFrame
             mask = com.notnull(self.values).all(axis=0)
             # size = mask.sum()
diff --git a/pandas/tests/test_panel.py b/pandas/tests/test_panel.py
index 7c67ded16139c..50ed5f092c979 100644
--- a/pandas/tests/test_panel.py
+++ b/pandas/tests/test_panel.py
@@ -1525,19 +1525,19 @@ def test_transpose_copy(self):
 
     def test_to_frame(self):
         # filtered
-        filtered = self.panel.to_frame()
+        filtered = self.panel.to_frame(dropna=True)
         expected = self.panel.to_frame().dropna(how='any')
         assert_frame_equal(filtered, expected)
 
         # unfiltered
-        unfiltered = self.panel.to_frame(filter_observations=False)
+        unfiltered = self.panel.to_frame(dropna=False)
         assert_panel_equal(unfiltered.to_panel(), self.panel)
 
         # names
         self.assertEqual(unfiltered.index.names, ('major', 'minor'))
 
         # unsorted, round trip
-        df = self.panel.to_frame(filter_observations=False)
+        df = self.panel.to_frame(dropna=False)
         unsorted = df.take(np.random.permutation(len(df)))
         pan = unsorted.to_panel()
         assert_panel_equal(pan, self.panel)
@@ -1554,6 +1554,10 @@ def test_to_frame(self):
         self.assertEqual(rdf.index.names, df.index.names)
         self.assertEqual(rdf.columns.names, df.columns.names)
 
+        # test kw filter_observations deprecation
+        with tm.assert_produces_warning(Warning):
+            filtered = self.panel.to_frame(filter_observations=True)
+
     def test_to_frame_mixed(self):
         panel = self.panel.fillna(0)
         panel['str'] = 'foo'
@@ -1597,7 +1601,7 @@ def test_to_frame_multi_major(self):
         assert_frame_equal(result, expected)
 
         wp.iloc[0, 0].iloc[0] = np.nan  # BUG on setting. GH #5773
-        result = wp.to_frame()
+        result = wp.to_frame(dropna=True)
         assert_frame_equal(result, expected[1:])
 
         idx = MultiIndex.from_tuples([(1, 'two'), (1, 'one'), (2, 'one'),
@@ -1651,7 +1655,7 @@ def test_to_frame_multi_drop_level(self):
         idx = MultiIndex.from_tuples([(1, 'one'), (2, 'one'), (2, 'two')])
         df = DataFrame({'A': [np.nan, 1, 2]}, index=idx)
         wp = Panel({'i1': df, 'i2': df})
-        result = wp.to_frame()
+        result = wp.to_frame(dropna=True)
         exp_idx = MultiIndex.from_tuples([(2, 'one', 'A'), (2, 'two', 'A')],
                                          names=[None, None, 'minor'])
         expected = DataFrame({'i1': [1., 2], 'i2': [1., 2]}, index=exp_idx)
@@ -2210,7 +2214,7 @@ def setUp(self):
         tm.add_nans(panel)
 
         self.panel = panel.to_frame()
-        self.unfiltered_panel = panel.to_frame(filter_observations=False)
+        self.unfiltered_panel = panel.to_frame(dropna=False)
 
     def test_ops_differently_indexed(self):
         # trying to set non-identically indexed panel