Before settlement by Americans of European descent, McArthur Lake was a natural wetland with peatlands situated at the confluence of Deep and Dodge creeks. Following completion of the Great Northern Railroad in 1892, an influx of loggers, miners, and homesteaders led to the development of the McArthur settlement and school for which McArthur Lake was later named. By 1933, the McArthur Lake wetland had been drained for hay and crop production.
The first land acquisition by Idaho Fish and Game was completed in 1942 in response to large scale wetland loss due to dike construction for flood control, and wetland drainage for agricultural production in the Kootenai Valley. The original property consisted of a wetland dissected by meandering channels of Deep Creek and Dodge Creek. Development activities began in 1944 with the construction of an earthen dam and a wooden spillway that created a 200 acre reservoir.
Further land acquisitions in 1964 enabled the department to replace the original dam with a larger structure. In 1965, the dike was raised and a major concrete dam, spillway, and fish bypass was constructed. This increased the potential impoundment area of the reservoir to its present size of 600 acres. In order to maximize water storage capabilities, additional lands and flowage easements were purchased through 1974. In 1972, 268 acres immediately across the county road north of the management area were traded away. The department's WMA ownership presently consists of 1,271 acres.
In addition to land owned, flowage easements have been acquired on 37.1 acres in three different perimeter areas. Twenty cubic feet per second of water right has been secured from Dodge and Deep creeks. There is 4,800 acre-feet of water storage certified by the department of Water Resources for the impoundment. Highway, railroad, natural gas pipeline, electric transmission lines, county roads, and private access right-of-ways have been granted by the Department along with limited multiple use easements. A lifetime, non-transferable agreement was issued to a neighbor for use of a well near the headquarters.
In 1977, a new shop and storage building were completed. A new residence for the McArthur Lake WMA manager was built in 1981. Major repairs to the concrete dam, spillway, and fish bypass were completed in 1988 and 1994. Other developments include a boat ramp and dock, fishing dock, and toilets.
About 500 feet of ditch was blasted around the edge of the lake in the early 1950s. In 1973, 2,600 feet of channel was dug with a dragline through the wetland in the north end. More than a half-mile of channels were excavated along the northwest margin of the reservoir, creating thirty- two 20 x 40 feet islands in 1965 and 1967, to provide nesting islands for waterfowl. These channels have degraded over time and few of the islands remain above water.