The terraces were built by patience measured in millennia. Geothermal springs pushed silica-saturated water to the surface, and as the water cooled, it shed its dissolved minerals. Deposition was fastest at pool margins, where cooling happened quickest, so the silica built up into basins that overflowed into basins below, descending the hillside in a grand staircase. Geologist Ferdinand von Hochstetter, who surveyed them in 1859, wrote that "doubtless thousands of years were required" for their formation. The White Terraces - Te Tarata, meaning "the tattooed rock" - dropped 25 metres through roughly fifty tiers over 240 metres. The smaller Pink Terraces, Ōtukapūarangi, descended 22 metres over about 100 metres. Tourists preferred bathing in the upper Pink Terrace pools for their clarity and comfortable range of temperatures.

One of the first Europeans to see them was Ernst Dieffenbach, who visited Lake Rotomahana during a New Zealand Company survey in June 1841. His description in Travels in New Zealand lit a slow fuse of curiosity across the world. By the 1870s, high-quality photographs had reached Europe, and the terraces became New Zealand's foremost tourist attraction - remarkable given how difficult they were to reach. The country was still largely roadless, and travellers had to navigate Māori-guided routes through dense bush and across lakes by canoe. For the Māori communities around Rotomahana, notably the Te Tuhourangi and Ngāti Hinemihi iwi, the terraces were both a sacred taonga and a source of income, as they served as guides and hosts for the growing stream of visitors.

At around 1:30 a.m. on 10 June 1886, Mount Tarawera split open along a 17-kilometre rift. Hot mud, red-hot boulders, and immense clouds of black ash erupted from the fissure, which tore through the mountain, passed directly through Lake Rotomahana, and extended into the Waimangu valley beyond. Where the terraces had stood, a crater plunged more than 100 metres deep. Government surveyor Percy Smith, after examining the devastated landscape in the weeks that followed, concluded that the terraces were either buried under stone or had sunk into the main crater. The prevailing assumption became simple and final: the terraces were destroyed, and they would never be seen again.

The assumption held for over a century, though not everyone accepted it. Chief Guide Warbrick maintained that the terraces survived, buried under mud and ash. He could never produce evidence. Then in February 2011, researchers from GNS Science and the Woods Hole Oceanographic Institution, mapping the floor of the new, much larger Lake Rotomahana with a REMUS underwater vehicle, reported finding what appeared to be the lowest two tiers of the Pink Terraces at 60 metres depth. A portion of the White Terraces was reported in June that year. The claims were contested by freelance researcher Bill Keir, who argued the structures sat in the wrong location to be the original terraces. Subsequent work by Rex Bunn and Sascha Nolden, using Hochstetter's original 1859 survey maps overlaid on modern bathymetry, placed the pre-eruption terrace sites on dry land - suggesting that if remnants survive, they may lie not underwater but beneath the sediment on the lake's shore. The debate remains unresolved, the terraces keeping their secret.