Torch Lake was originally formed at the end of the Last Glacial Period, along with neighboring Lake Michigan. Receding glaciers carved the surface of the Earth, and melting glaciers filled the new basins, which are now known as the Great Lakes. Torch Lake (along with other long lakes in the region like Lake Leelanau and Elk Lake) were originally bays of the young Lake Michigan. However, sandbars formed at the northern end of these lakes, separating them from Lake Michigan.

The name of the lake is not due to its shape, rather, is derived from translation from the Ojibwe name waaswaaganing meaning "Place of Torches" or "Place of Flames", referring to the practice of the local Native American population who once used torches at night to attract fish for harvesting with spears and nets. For a time, it was referred to by local European settlers as "Torch Light Lake", which eventually was shortened to its current name.