Williams (1916) reported that Olallie Butte had a number of small, unnamed lakes, particularly concentrated at its southern base, which were mostly shallow. According to Johnson et al. (1985), dozens of these lakes were carved by the movement of glaciers over Olallie Butte. Olallie Lake is the largest of more than 200 bodies of water near Olallie Butte's base and contained in the Olallie Lake Scenic Area in Mount Hood National Forest's southern segment. Fed by runoff, precipitation, and subsurface seepage, Olallie Lake otherwise has no clear source of inflow or outflow, nor do many other lakes in the Olallie Butte area. To maintain Olallie Lake's water level, a low dam was built on the Mill Creek outlet, which flows east to Long Lake. Shitike Creek heads between Olallie Butte and Mount Jefferson, coursing east to the Warm Springs community before it joins the Deschutes River.