The grounds of Hogwarts function partly as a nature reserve for magical creatures which have difficulty existing in Muggle-inhabited areas.
The lake is full of creatures that would make a Muggle naturalist swoon with delight – if terror did not seize them first. There are Grindylows (vicious little water demons), merpeople (of a hardy Scottish strain) and a giant squid, which is semi-domesticated and permits students to tickle its tentacles on sunny days, when it basks in the shallows.
Giant squid genuinely exist, though they are most mysterious creatures. Although their extraordinary bodies have been washed up all over the world, it was not until 2006 that a live giant squid was captured on film by Muggles. I strongly suspect them of having magical powers.
The lake is the setting for the second task that the Triwizard competitors must face in Goblet of Fire, which is also my favourite task. I find it satisfyingly creepy; I like the diversity of the methods employed by the competitors to breathe underwater, and I enjoyed plumbing the depths of a part of the grounds that had never been seen before. In the original draft of Chamber of Secrets, I had Harry and Ron crash into the lake in Mr Weasley’s Ford Anglia, and meet the merpeople there for the first time. At that time I had a vague notion that the lake might lead to other places, and that the merpeople might play a larger role in the later books than they did, so I thought that Harry ought to be introduced to both at this stage. However, the Whomping Willow provided a more satisfying, less distracting crash, and served a later purpose in Prisoner of Azkaban, too. The Great Lake (which is really a Scottish loch, apparently freshwater and landlocked) never did develop as a portal to other seas or rivers, although the appearance of the Durmstrang ship from its depths in Goblet of Fire hints at the fact that if you are travelling by an enchanted craft, you might be able to take a magical shortcut to other waterways.