The area around the lake entrance was part of an original 1821 grant to Thomas Davey. Lake Illawarra covers 38 square kilometres and is shared with and Shellharbour City Council and Wollongong City Council.

The sale of the Peterborough Estate on the eastern side of Lake Illawarra in 1921 saw new towns emerge around the lake, and the area became a holiday destination. In 1927, over 2000 holidaymakers camped on the shores at Lake South. At night, crowds would gather with flare lamps and lanterns to go in search of delicious lake prawns that could be scooped out with a bucket.

In those days, the sand hills at the lake were up to 70 feet high depending on the winds. Locals and tourists would spend hours skiing down the sand hills on cardboard or Masonite off cuts. In later years, some of the sand was used as infill during the building of the steelworks, and a small amount was taken to the beaches in Hawaii.

Before Windang Bridge was built, travellers could only get across the lake entrance at low tide. The first Windang Bridge was constructed in 1938.