Because of these plural systems of water allocation, disputes soon ensued; these differences were resolved by the state courts.

In 1926, the courts held that a riparian water user was entitled to the full flow of a stream, without regard to the reasonableness of the use.

In 1919, Col. Robert B. Marshall, Chief Surveyor for the U.S. Geological Survey, proposed a plan for the federal government to build a series of diversion dams, and two grand canals along the sides of the Sacramento and San Joaquin Valleys, consequently irrigating California's Central Valley.

In 1933, the California State Legislature and Governor James Rolph approved the construction of the Central Valley Project, with initial plans to build a 420-foot dam at Kennett.

This would provide regular flows out to the San Francisco Estuary, reducing salinity intrusion into the Sacramento-San Joaquin Delta.

San Francisco's Caspar W. Weinberger, Chairman of the California Assembly Government Organization Committee, held a series of statewide hearings in 1954 and 1955 focused on creating a State Water Project that could supply the growing municipal and agricultural demands of the state.

Banks was appointed by Governor Knight as the department's first director and given the task of developing a plan for the proposed State Water Project.

In 1959, the Legislature enacted the Burns-Porter Act which authorized $1.75 billion for the construction of the proposed State Water Project.

The Burns-Porter Act was approved by Californian voters in 1960 and in the same year the Whale Rock Dam, DWR's first major water project located near San Luis Obispo, was completed.

In 1961, William Warne was appointed director of the department and oversaw the construction of a key facility in the operation of the State Water Project: Oroville Dam.

The DWR and the United States Bureau of Reclamation also signed an agreement to design a joint reservoir in San Luis.

Because water from the Oroville and Shasta dams (from the existing Central Valley Project) would be moved down the existing Sacramento River channel into the Sacramento-San Joaquin River Delta, excess flows would roll through the delta and then be stored in the Central Valley until needed.

Though the DWR was formed in 1956 with the purpose to build and operate the State Water Project, as a state organization responsible for the development and protection of water resources, the department has since been subject to numerous legislative, judicial, and administrative orders that dictate how the department should protect the public trust.