The dam forms Pactola Lake, which at over 1,200 acres (490 ha) is the largest and deepest body of water in the Black Hills.

The town's name originated from the Pactolus river in ancient Lydia (modern day Turkey), which was known for the gold found in its bed.

Pactola was eventually left behind by the miners in search of richer gold deposits, but a few residents stayed in the town until the 1950s, when the Bureau of Reclamation began to purchase and clear property in preparation for building a dam and reservoir.

However, there was a controversy over whether the Pactola or Deerfield Dam should be built first, and due to this delay, most of the initial Congressional funds for the Rapid Valley Unit were moved to an irrigation project in Wyoming instead.

[5] The Pactola Dam was authorized under the Flood Control Act of 1944 but construction was put on hold in part due to World War II.

In 1949 Rapid City also requested a right to water stored in a future Pactola Reservoir, some of which would be used at Ellsworth Air Force Base.

[1] As many as 200 people worked on at the dam site at any one time; no deaths occurred during the four years of construction but there were numerous injuries due to the hazardous terrain.

[2] The spillway is an un-gated concrete overflow structure located in between the main dam and auxiliary dikes, and has a capacity of 245,000 cubic feet per second (6,900 m3/s).