The lake takes its name from William Dale, a government surveyor and veteran of the War of 1812. Settling originally in Willow Grove, Mr. Dale bought his first 449 acres (1.8 km²) of land nearby in 1808. The farm eventually grew into a plantation known as Dale Hollow; he and his descendants lived there until the dam was started in 1942. The waters of the lake would ultimately cover both the farm and Willow Grove, “the town that drowned”.

Dale Hollow Dam and Lake was authorized by the Flood Control Act of 1938 and the River and Harbor Act of 1946. The project was completed by the United States Army Corps of Engineers in 1943, making the lake the oldest artificial lake in Kentucky.[1] Hydroelectric power generating units were added in 1948, 1949 and 1953. The project was designed by the Corps of Engineers and built under their supervision by private contractors. The hydroelectric generators of Dale Hollow Dam are used to supply power to the surrounding countryside. The dam, powerplant and reservoir are currently operated by the Nashville District of the Corps.