The reservoir's construction, by damming the Gwash valley near Empingham, was completed in 1975. During its construction it was known as Empingham Reservoir. It flooded six or seven square kilometres of the Gwash valley as well as the side valley, at the head of which lies Oakham. Nether Hambleton and most of Middle Hambleton were demolished and their wells were plugged as part of the ground preparation. Their neighbouring village of Upper Hambleton survived, and now sits on the Hambleton Peninsula. The Gwash makes a net input to the lake but its flow downstream is maintained. Most of the stored water is extracted from the River Welland at grid reference TF017060, between Tinwell and Stamford, and from the River Nene upstream from Peterborough, a city which is a major user of the water.

Because much of the valley is clay, material for the dam was extracted from pits dug within the area that would be subsequently flooded. The clay dam is 115 feet (35 m) high, and around 1,300 yards (1,200 m) long. At its base, it is up to 890 yards (810 m) wide, and the finished structure has been landscaped to blend in with the environment, even when viewed from Empingham, the nearest village.

Rutland Water contains a limnological tower for study of the reservoir's ecological conditions.