The answer is, no one knows for sure. McCain was born to American parents in the US-controlled Panama Canal Zone. That makes him a US citizen, but does it make him a natural born one? From the New York Times:
Mr. McCain's likely nomination as the Republican candidate for president and the happenstance of his birth in the Panama Canal Zone in 1936 are reviving a musty debate that has surfaced periodically since the founders first set quill to parchment and declared that only a "natural-born citizen" can hold the nation's highest office.Almost since those words were written in 1787 with scant explanation, their precise meaning has been the stuff of confusion, law school review articles, whisper campaigns and civics class debates over whether only those delivered on American soil can be truly natural born. To date, no American to take the presidential oath has had an official birthplace outside the 50 states.
"There are powerful arguments that Senator McCain or anyone else in this position is constitutionally qualified, but there is certainly no precedent," said Sarah H. Duggin, an associate professor of law at Catholic University who has studied the issue extensively. "It is not a slam-dunk situation."
I fear the worse. Imagine the entire election campaign being about a forthcoming Supreme Court ruling on the issue.
(Seen in picture is a fragment of a historical map of the Panama Canal Zone.)

I have taken the great work done by The Mudslinger and turned it into a resolution.
Take this resolution to your precinct convention and start the conversation to protect the Constitution today!
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RESOLUTION
OPPOSING INELIGIBLE CANDIDATES FOR PRESIDENT OF THE UNITED STATES
PRECINCT # _____________
SENATE DISTRICT # _____________
_____________ COUNTY, TEXAS
WHEREAS, the 14th Amendment and matching regulations limit citizenship to natural born and naturalized.
WHEREAS, John McCain was born in 1936 in the Canal Zone to citizen parents.
WHEREAS, 8 USC 1403(a) declares naturalized citizenship in 1952 on persons born in the Canal Zone to citizen parents.
WHEREAS, 8 USC 1403(a) applies to John McCain at age 16.
WHEREAS, John McCain is a naturalized citizen.
WHEREAS, the Canal Zone was not part of the United States.
WHEREAS, John McCain was not born in the United States.
WHEREAS, John McCain is a citizen not born in the United States.
WHEREAS, John McCain is not a natural born citizen.
WHEREAS, Article II of the Constitution states to be President a person must be a natural born citizen.
WHEREAS, John McCain is not eligible to be President of the United States under Article II of the Constitution.
WHEREAS, John McCain should be disqualified from running for President and should be decertified and removed from all present and future Presidential ballots, and his past results should be disallowed.
THEREFORE LET IT BE RESOLVED that the Republican Party of Texas will update Party rules to leave uncommitted, delegates of a non-qualified candidates for President of the United States; and
LET IT BE FURTHER RESOLVED that this resolution be passed to the rules committee of the appropriate District and the State of Texas for full consideration.
Adopted by Precinct # _______ in Senatorial District # _____ of ____________ County, Texas on March 4, 2008.
Precinct Convention Chair _______________________________________
_______________________ County, Texas
Telephone __________________________
Sincerely,
[Your name]
[Your address]