The lake is created by the dam on the Reventazon River as it flows in from the northeast winding through the steep-sided valley.

[5][6] The river has a total drainage area of 3,000 square kilometres (1,200 sq mi) in an elevation range varying from 3,432 metres (11,260 ft) above mean sea level at its highest point to the lowest outflow point into the Atlantic Ocean; out of this, the reservoir created by the Cachi Dam intercepts the upper catchment area of 919 square kilometres (355 sq mi).

[9] Density currents are formed in the reservoir on account of a combination of temperature gradients and high sediment concentration.

However, there was a temporary suspension of power generation at the powerhouse located 12 kilometres (7.5 mi) away, due to dislocation of the transformers.

The construction of the arch dam was undertaken after extensive explorations of the geological features confirmed the suitability of the site.

The project was implemented with soft loan funding provided by the World Bank in two stages after due appraisal.

To keep the reservoir in a serviceable condition to derive planned power benefits, it became obligatory to drain the reservoir to its lowest level (though it caused an inevitable economic loss in power generation during the filling stage every year) and flush the deposited sediments downstream so that the intake does not get choked and allows sediment flow into the turbines.

However, as a result of the silt flushing, some detrimental effect on the biota was noted by local people of the area in the downstream reaches of the river below the dam.

[9][14] The effectiveness of the flushing operations has been studied over the years by hydrographic surveys of the reservoir using turbidimeters, side scan sonar, sub-bottom profiler, repeated echo sounding, sediment coring and X-ray techniques.

The old river channel also had indicated a deposit rate of about 2 metres (6 ft 7 in), which, however, is now regularly flushed out by opening the scouring sluice.

[15] The dam takes advantage of the head available in the river, which for some 65 kilometres (40 mi) creates white water suitable for rafting.

[16] Surrounded by mountains, the lake was created when the Instituto Costariccense de Electricidad built the dam across the river to supply San José with hydroelectric power.