The champagne was flowing, along with a few tears. The lobsters were drifting on a sea of clam juice. The only thing missing last night was the band playing "Nearer My God to Thee" as the 1,000-seat, $12 million Potomac restaurant, the Titanic of eateries, slowly slipped into oblivion.

"I don't believe it," said waiter Terry Wheaton. "Small restaurants go out of business, but this is sort of an institution."

"We're shellshocked," said publicist Kate Merlino as disbelieving patrons, some of whom had heard the news on television, filed into the opulent dining room for one last supper.

And what a supper it was.

"I think it's great," said Damien Prince Brown, 21, a former waiter. "We're gonna throw a party. I'm sorry to see a lot of people have lost their jobs," he said, "but I'm here to celebrate."

Washington had never seen anything like it. When Warner LeRoy, 270-pound impresario and founder of New York's Maxwell's Plum and the Tavern on the Green, opened what he called "a grand cafe'" on the developing Georgetown waterfront 15 months ago, skeptics sniffed that the gawdy 20,000-square-foot monstrosity, with its 800,000 handmade jewels sparkling from the ceiling and a 1935 brass model of the Super Chief circling the room in an acrylic tube, would prove to be a Ship of Fools.

They were right.

The hot white lights of the TV camera crews nearly blinded last night's diners, while waiters poured champagne and tried to explain why Potomac was going under. "I was stunned," said chef Guy Gateau, coping with a kitchen operating with half its normal work force. "There were many walkouts," he said, pointing to a captain stuck washing dishes. And yes, some of the workers had started celebrating before the last bell. "It's no fun working with drunk people," said Gateau, who is now looking for a job along with the rest of the Potomac personnel.

The restaurant's 365 employes got the bad news at a meeting called by the management yesterday afternoon. "I walked in and said, 'Is it going to be busy tonight?' They said, 'It's our last night.' It's really weird," said hostess Kimberly Tarmaglini, 21. "You don't think anything this elaborate or grand could close down in one day."

Celebrities who had recently supped at the restaurant included Esther Williams, Tina Louise, Mark Spitz, Dick Van Patten, Oliver Stone, Liz Taylor and George Hamilton.

"Warren Beatty and Shirley MacLaine brought their mother here for dinner," said Merlino, who told one reporter that she burst into tears yesterday when she heard the news. "We're very upset," said Loretta Fabricant of Miami. "I came all the way here because I'd heard how gorgeous it was. We're sorry it's closing, but we're glad to be here for the last night."

While the checkroom and ladies' room attendants had obviously gotten on one of the first lifeboats, "the male restroom guy stuck it out," said Potomac Manager Steve Peeck, seemingly calm in the storm-tossed restaurant.

Peeck said last night that Potomac owner LeRoy received an eviction notice Friday from his landlord, Herbert Miller, who owns the Washington Harbour complex. The landlord and LeRoy have been locked in a legal battle that has reportedly cost the restaurateur more than $1 million, and Peeck confirmed that LeRoy had not paid his rent since July. "I don't know how much Warner was in the stock market, or hurt by it," said Peeck, echoing the speculation of many of the diners.

"We've been on the phones all day, canceling private parties," Peeck said. Weddings, receptions and bar mitzvahs were being hastily farmed out to nearby Washington hotels, while sympathetic competitors, including Jean Louis Palladin and Tiberio owner Giullio Santullo, offered their condolences.

The decision to close began spreading early yesterday morning, and as the word went out, loyal patrons came by throughout the day and night to say farewell. "People came to celebrate," said maitre d' John Kalu. "Actually, you see champagne everywhere. People are rushing over to have the last meal."

At some tables, grand finale guests ordered bubbly while singing "$95 Bottle of Taittinger on the Wall ..."

There were few who remembered the $100,000 gala opening of the restaurant in July 1986, with acrobats swaying on 60-foot poles, waiters deftly slicing the heads off Moe t et Chandon champagne bottles, oiled musclemen lifting a mini-volcano and scantily clad dancing women, not to mention the fireworks exploding high above the river.

Asked what would happen to the cavernous, bejeweled and, yes, slightly tacky establishment, Merlino mused, "It would make a great ice-skating rink."

Special correspondent Martha Sherrill Dailey contributed to this report.