Powell Butte, an extinct cinder cone volcano, rises near the headwaters of Johnson Creek, an urban creek with remnant populations of native salmon and steelhead. It is one of four such cones (the others being Rocky Butte, Kelly Butte, and Mount Tabor) inside Portland’s city limits. All are part of the Boring Lava Field, an area of extinct volcanoes in Northern Oregon and Southern Washington.

As early as the mid-1970s, the Portland Water Bureau prepared a plan for Powell Butte that called for the construction of four 50-million gallon underground reservoirs to be located at the north end of the butte. In 1981, the first reservoir was built. Today, it still serves as the hub of the Water Bureau's distribution system. Then, in 1987, the city officially established Powell Butte as a 600-acre nature park filled with meadows and forests that attract a range of species.

In 1995, the Powell Butte Master Plan was drafted. It identified the city's plans to build a second reservoir by the year 2013. From 2011 to 2014, the city constructed a new 50-million gallon underground reservoir at Powell Butte Nature Park, known as Reservoir 2. Upon completion of the structure, the roof was completely covered with topsoil and then repopulated with native plants.

As part of the new reservoir project, many improvements were made to the park. The site's nine miles of trails were resurfaced, realigned, or reconnected in order to limit environmental impacts, reduce user conflicts, improve accessibility, and reduce fall-line impacts and steep grades. In addition, a new visitors' center, maintenance yard, Caretaker’s House, public restrooms, and permeable parking lot were constructed. The parking areas were designed to be water-permeable, allowing rainwater to pass through the porous asphalt surface to an underlying stone bed. Water is then gradually absorbed by the underlying soil, which filters it and returns it to the aquifer. 

The recent design and engineering projects were completed by Nevue Ngan Associates (landscape architecture), CH2M Hill (reservoir engineering), and Winterbrook (planning). The Friends of Powell Butte works closely with Portland Parks & Recreation in planning and implementing park improvements and providing volunteer services and citizen input.