It is believed to be the result of a huge volcanic eruption (see supervolcanos) approximately 26,500 years ago, and makes a good example of a caldera lake. According to geological records, the volcano that created the lake has erupted 28 times in the last 27,000 years. The first eruption, known as the Oruanui eruption, ejected an estimated 800 cubic kilometres of material and caused several hundred square kilometres of surrounding land to collapse and form the caldera that has become Lake Taupo.
The last eruption, which occurred in 181AD, is believed to have (only) ejected 100 cubic kilometres of material, of which 30 cubic kilometres was ejected in the space of a few minutes. It is believed that the eruption column was 50 kilometres high, twice as high as the eruption column from Mount St. Helens in 1980. This makes it the most violent eruption in the last 5000 years. It was sufficiently large enough, due to the ash-expulsion, to turn the skies red over Rome and China, and went down as a matter of historical record. This eruption further expanded the lake.
The Waikato River runs from Lake Taupo to the western coast of the North Island, although it is believed to have formerly exited on the other side.
The town of Taupo is situated upon the north-eastern shore of the lake.
Lake Taupo lies in the Taupo volcanic zone, which encompasses the active volcanos between Mount Ruapehu in the southwest to White Island in the northeast. The whole area is geologically active and Lake Taupo is considered by geophysicists to still be a potentially active volcano.