The dam was built by the United States Army Corps of Engineers in 1941 to provide water for Camp San Luis Obispo.

It now provides the city of San Luis Obispo with a portion of its drinking water.

Boating, fishing and rowing are popular activities on the lake and there are camping sites on the shore.

Fish found in Santa Margarita Lake include largemouth bass, catfish, carp, and various sunfish.

There is a proposal to raise the dam by 19 feet (8 m) with the addition of a spillway gate, which was part of the original design.