It is part of the Shoshone Project, successor to several visionary schemes promoted by Cody to irrigate the Bighorn Basin and turn it from a semi-arid sagebrush-covered plain to productive agricultural land.

The Heart Mountain Canal Project, which brings water to irrigate lands to the north of the river, required the construction of the 2.8-mile (4.5 km) Shoshone Canyon Tunnel, completed in 1939.

Work began immediately, with drilling for geologic investigation starting in July 1904 and continuing for ten months.

Working conditions were harsh, leading to the first strike in Wyoming's history in November, in which workers demanded and received three dollars a day from USF&G.

[4] USF&G delegated responsibility for the work to two new contractors, Locher and Grant Smith and Company, in March 1908.

[4] Immediately after completion the dam suffered from leakage through the outlet works, leading to low water elevations that exposed mudflats, which soon produced dense blowing dust.

Following delays for spring flooding, work on the power house and supply tunnel was complete in 1922, ready for the installation of electrical equipment.

1 and 2 were decommissioned and left in place, while 3 was replaced with a new 3 MW Francis turbine unit that started operation in 1992.

A natural cave had to be crossed by a concrete flume of two 70 feet (21 m) spans, constructed under difficult conditions in a high-gas environment.

[10] Starting in 1985, the crest of the dam was raised 25 feet (7.6 m), increasing the reservoir's capacity by 260,000 acre-feet (0.32 km3) when the project was completed in 1993.

[11] The expanded reservoir inundated facilities at[12] Buffalo Bill State Park, requiring their relocation and reconstruction.

It primarily functions to dissipate the pressure in the conduit before it enters an open canal, generating power as a byproduct.

The unit operates a Francis turbine generating 4.5 MW on a seasonal base load basis, with a 110-foot (34 m) head.