The drainage basin for Blue Lake has very steep, forested slopes and is mostly part of the crater left by the volcano's eruption. About three percent of the water's surface area has a depth of less than . The lake is fed by underground springs near the eastern shore, snowmelt from its surroundings, and a stream from the northwest. One outlet, Link Stream, runs through the eastern crater wall for to the nearby Suttle Lake, a moraine-dammed lake that is popular among tourists, which is warmer and eutrophic. Near Blue Lake lie terminal moraines from an ice sheet between Mount Washington and Three Fingered Jack, which are covered with of volcanic ash deposited by cinder cones in the Sand Mountain Volcanic Field and about of cinders produced by Blue Lake Crater.