The area was originally a swampy bog at the foot of the small hills that border the town.

In 1873 Sir William Gregory authorised the damming of the Thalagala stream, which originates from Mount Pidurutalagala,[3] in order to make more land available for the expansion of the town.

[4] In 1881 the lake was stocked with trout by C. J. R. Le Mesurier (Assistant Government Agent for Nuwara Eliya).

[5][6] In 1913 the waters of the lake were directed into a tunnel which flows to a hydro power station at 'Blackpool' between the town and Nanu Oya.

In British times Lake Gregory was used for water sports and recreational activities.