The dam structure and outlets are within a few hundred feet of the south boundary of Yellowstone.

The zoned earthfill dam was built between 1937 and 1939 as part of the Minidoka Project, which provides water to irrigate farmland in Idaho's Snake River Plain.

[1] The Grassy Lake Dam and the Island Park Reservoir in Idaho were the outcome of an ambitious plan to use the abundant waters of Yellowstone National Park for irrigation in Idaho, Montana and Wyoming.

A variety of projects were proposed starting in 1919, the most advanced of which involved a proposed reservoir in the Bechler Meadows and Falls River regions of the southwest corner of the park, immediately to the north of the Grassy Lake site.

The backlash from conservationists, who compared the proposed reservoir to the Hetch Hetchy Reservoir in Yosemite National Park, derailed the plan, along with disagreements between Wyoming, Montana and Idaho over water rights.