In the 1840s Jesuit priest Pierre-Jean DeSmet began working with the Kalispel tribe along the nearby Pend Oreille River.

[3] The name would not stick though and in 1865 Captain John Mullan, a U.S. Army Captain who was traveling through the area under orders to build a road (later known as the "Mullan Road") from Walla Walla, Washington to Fort Benton, Montana, after the discovery of silver in the central Idaho mountains along what today is the route of Interstate 90, would rename the lake Kaniksu.

In 1911, the state wanted to consolidate the three million acres of scattered parcels it received with statehood into a compact body to better manage timber sales effectively.

It took 10 years of talks with the Secretary of Agriculture, a proclamation from President William Howard Taft, multiple court cases, much lobbying by timber interests, and an act of the U.S. Congress for Idaho to receive title to the Kaniksu National Forest's eastside land in 1917.

The Priest Lake Public Library, located at the corner of Luby Bay Road and Highway 57, is open year-round.

Housed in the historic Lamb Creek School, the library has wireless internet access and an extensive local history collection.

The Priest Lake Museum, located in a 1935 USFS Guard Station on Luby Bay, hosts exhibits and programs on the area's rich heritage.

Sixty inches (1.5 m) precipitation falls in the mountains around the lake each year with almost half of that coming in the form of snow.