Due to frequent flooding and subsequent damage, the Vltava River in Southern Bohemia was problematic for Český Krumlov and other settlements situated on it.

To harness the power of the river, and to prevent continued catastrophe, it was decided that a hydroelectric plant would be built high on the Vltava.

[2] The stream bed of the Vltava near Lipno was chosen because it has a slight incline, facilitating the construction of a reservoir there.

The dam is built along the highest-elevated stage of the Vltava River's cascade[3] (roughly 726 metres above sea level), thus enabling large amounts of hydropower out-put.

This area is mountainous, and borders the Šumava National Park and Nature Reserve.