The name Gougane Barra comes from Saint Finbarr, who is said to have built a monastery on an island in the lake nearby during the 6th century. The present ruins date from around 1700 when a priest called Denis O'Mahony retreated to the island. During the times of the Penal Laws, Gougane Barra's remoteness meant that it became a popular place for the celebration of the Roman Catholic Mass. The nineteenth century oratory which stands near the original monastery is famous for its picturesque location and richly decorated interior and is a popular place for wedding photography. St Finbar's Oratory is the final destination for one of the five Pilgrim Paths of Ireland, St. Finbar's Pilgrim Path, which starts 35-kilometres away in Drimoleague.

A forestation around the settlement began in 1938 and Gougane Barra is now home to a 1.42 square kilometre (or 138 hectare) forest park with 20 different species of tree, mainly Sitka spruce, Japanese larch, Scots pine and Lodgepole pine, and a large number of native species of flora and fauna. The source of the River Lee rises in the hills above the park and flows into Gougane lake. The forest park has 5 km of motor trail and 10 km of hill walks, nature points and vista trails. The Coillte-owned forest at Gougane Barra was temporarily closed in 2014 to allow felling of 16,000 trees, mostly larches, infected with or susceptible to Phytophthora ramorum, a pathogen responsible for Sudden Oak Death. These trees were to be replaced with other species such as oak and Scots pine.

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