The small community of Cataract is located near the upper falls. The first permanent settler in this area was Isaac Teal who lived near the lower falls. He erected a small mill around 1820. The wildlife was plentiful. In 1841, Theodore Jennings and his mother rode horseback from Louisville to Greencastle to visit his brother. From the primitive highway, he heard the roar of the falls and liked the sound. He bought 1,000 acres, which included the falls and Teal's rotting old mill. Jennings returned to the area shortly afterward, bringing his wife and 4 children along with other friends and relatives. They journeyed here by covered wagon through the snow. They lived in the wagons until homes would be built. Jennings erected a sawmill, flour and woolen mill, general store, copper and blacksmith in what would later be called Jennings Township. Theodore Jennings was related to Jonathan Jennings, Indiana's first Governor. Jennings later moved and sold the falls and surrounding acreage to John Teal. Quarries of building stone and plentiful coal deposits are in the area, but they had no commercial value because of the transportation costs. When first settled, the countryside was covered with dense growth of deciduous timber. The settlers, not realizing the value of the hardwood, destroyed much of it in clearing farms. Some families used black walnut for fuel, little dreaming that it would some day exceed in value the land upon which it grew. Sugar Maples once grew in all parts and sugar camps were profitably worked. The soil is poorly adapted to farming, but the limestone underneath is favorable to the growth of bluegrass, which makes good stock and grazing country. At the peak of it's growth. Cataract was a bustling town, marketing lumber in Greencastle and flour as far away as Louisville. When the sawmills played out and the use of grist mills declined, the town subsided into a sleepy hamlet.

There was a primitive bridge across Mill Creek between the upper and lower falls, which washed out in the flood of 1875. A 140' Smith Type 3 covered bridge was built at the upper falls in 1876 and was open to the traffic until 1988. The Indiana Department of Natural Resources restored the Cataract Bridge in 1995.

In 1883, John Steiner and David Wallace purchased Cataract Falls and much of the adjoining acreage. John Steiner was a wealthy railroad man and horse racing fan. On his 1,000 acre estate at Cataract, he maintained a half-mile track, which drew horse racing fans from all over the country. From 1883 to 1952, the falls belonged to the Steiner family. Agnes Wallace Steiner's daughter, Agnes Stuckey, operated a resort near the falls from 1916 until 1967. In 1952, she donated the upper falls and 37 acres on both sides of Mill Creek to the State of Indiana as a memorial to her mother, maintaining a 15 year lease with the state before closing the resort. The U.S. Government purchased 329 acres in the lower falls area when Cagles Mill Lake was being formed as a giant flood control program in the 1950's. When the government began buying property, it was feared that Cataract Falls was doomed. However, the construction of Cagles Mill Dam, Cagles Mill Reservoir, and Lieber State Recreation Area have preserved Cataract Falls for public enjoyment. Even though summer homes now dot the countryside and the Owen-Putnam border area is gaining new resident, the little community of Cataract has not lost it's homey village atmosphere.