The lake is man-made, the result of sluicing operations that began in 1873 when John Ewing (1844–1922) formed the St.Bathans Channel Company, to mine the Kildare Hill Gold Claim in St Bathans.

His company constructed a tailings channel and introduced hydraulic elevating to work the claim.

This company restarted operations and worked the claim until 1932, when it was finally abandoned due to the fear of undermining the town of St Bathans.

Natural drainage from the surrounding hills filled the hole with water and created the present day lake.

The Blue Lake is a key feature of modern-day St. Bathans and is used for swimming, fishing, bodyboarding, and kayaking.