It is the largest artificial lake in the United Kingdom by capacity of water and it is surrounded by Kielder Forest, one of the biggest man-made woodlands in Europe.

The scheme was planned in the late 1960s to satisfy an expected rise in demand for water to support a booming UK industrial economy.

[5] After the scheme was approved by Parliament in 1974, work to build the reservoir and the dam at the hamlet of Yarrow in the Kielder Valley began in 1975.

The reservoir and dam were designed for Northumbrian Water by consulting civil engineers Babtie, Shaw and Morton.

The reservoir's purpose is to provide compensating discharges into the Kielder Transfer Scheme, where water can be transferred to the North Tyne, Wear and the Tees to support abstractions of water further downstream while maintaining minimum acceptable levels in the rivers in times of drought.

In December 2005, RWE Npower Renewables bought the rights to operate the plant and sell the electricity generated by it, with a contract lasting until 2025.