The lake was formed in 1947 by the damming of the Waikato River to store water for the 96-megawatt Karapiro power station.

On the orders of the Ngāti Hauā chief Te Waharoa, his dead warriors were cremated, this taking place on rocks beside the Waikato River, the location then becoming known as Karāpiro, from the Māori language words karā, meaning "basaltic stone", and piro, meaning "foul smelling".

[6] Construction of the Karapiro Dam began in 1940, however progress was slow due to labour and material shortages related to World War II.

The station is a base load generator due to its need to maintain water flows into the Waikato River system beyond the lake.

The gold clam grows and breeds very quickly, and can alter an ecosystem by reducing the majority of the phytoplankton, excreting a lot of nitrogen and phosphorus, and physically dominating the available space on the river or lakebed.

Despite this, the lake is still open for recreation,[14] making it a threat to other waterways because people may unknowingly spread golden clams on their watercrafts.