Oxbow got its name from a three-mile bend in the Snake River. To early settlers the river bend looked like an "oxbow," the U-shaped frame that forms a collar around an ox's neck. The site is 13 miles downstream from Brownlee Dam. Here the river carves its way around a large mass of erosion-resistant rock. It's one of the world's most unusual dam sites.

In 1909, Oregon Light and Power Company first began constructing a diversion tunnel at the site. But funds ran out and work stopped before the project was complete. When this phase of construction ceased, a concrete tunnel more 1,100 feet long and 28 feet in diameter diverted river flow through the spine-like hill to the power plant on the downstream side of the oxbow. And though the powerhouse had room for six generators, it had only one. Enough water was diverted into the tunnel to produce just 600 kilowatts of energy.

In 1947 Idaho Power applied for a license authorizing the development of the three-dam Hells Canyon Complex. A political struggle between Idaho Power and public power advocates who wanted to build one high dam in Hells Canyon ended when the Federal Power Commission (now the Federal Energy Regulatory Commission, or FERC) issued the company a license in 1955. This license allowed Idaho Power to build the Oxbow, Brownlee and Hells Canyon projects.

Idaho Power constructed a dam 1,150 feet across the river on the upstream side of the oxbow. When the project was complete in 1961, the river's full force was put to use through a new plant with a nameplate capacity of 190,000 kilowatts, or 190 megawatts.