The dam and reservoir are a part of the Minidoka Project on the Snake River Plain and are used primarily for flood control, irrigation, and recreation.

When the original dam was built in the 1920s by the U.S. Bureau of Reclamation, the residents of American Falls were forced to relocate three-quarters of their town to make room for the reservoir.

A lava dam created a broad shallow lake in the area of the Raft River during the late Pliocene, over one million years ago.

Much of the basin filled with fine sand, silt, and gravel; then the dam was breached and the lake drained.

These sediments (called the Raft Formation) lie beneath most of the present-day American Falls Reservoir.

The Snake River has continued to erode its channel in the basalt and modify the lake bed sediments until the present time.

[3] The dam at American Falls is on the Snake River Plain at an elevation of 4,357 feet (1,328 m) above sea level.

In 1902 the National Reclamation Act was signed into law and federal funds from the sale of public lands became available to create and maintain irrigation projects in the Western United States.

[13] When the second dam was planned, members of the Shoshone and Bannock communities opposed expansion as it would further flood the lands of the Fort Hall Bottoms.