A New York Times article published during the 1992 U.S. presidential campaign reported that Clinton and his wife had invested and lost money in the Whitewater development project.

David Hale, the source of criminal allegations against President Bill Clinton in the Whitewater affair, claimed in November 1992 that Bill Clinton, while governor of Arkansas, pressured him to provide an illegal $300,000 loan to Susan McDougal, the partner of the Clintons in the Whitewater land deal. Clinton supporters regarded Hale's allegations as questionable, as Hale had not mentioned Clinton in reference to this loan during the original FBI investigation of Madison Guaranty in 1989. Hale also had a history of creating dummy companies, then looting their federal funds, such as SBA loans, and then allowing them to fail. Only after coming under indictment for this in 1993 did Hale make allegations against the Clintons.

A U.S. Securities and Exchange Commission investigation did result in convictions against the McDougals for their role in the Whitewater project, but the Clintons themselves were never prosecuted, as three separate inquiries found insufficient evidence linking them with the criminal conduct of others related to the land deal.. Bill Clinton's successor as Arkansas Governor, Jim Guy Tucker, was also convicted and served time in prison for his role in the fraud. Susan McDougal later served 18 months in prison for contempt of court for refusing to answer any questions relating to Whitewater, and was later granted a pardon by President Clinton just before leaving office.

The term Whitewater is also sometimes used to include other controversies from the Bill Clinton administration, especially those such as Travelgate, Filegate, and the circumstances surrounding Vince Foster's death, that were investigated by the Whitewater Independent Counsel.

Bill Clinton had known Arkansas businessman and political figure Jim McDougal since 1968, and had made a previous small real estate investment with him in 1977. Clinton and Hillary Rodham were seeking ways of supplementing his salary of $26,500 as Arkansas Attorney General (which would rise to $35,000 if his campaign for Governor of Arkansas succeeded) and hers of $24,500 as Rose Law Firm associate. It was around this time that Rodham also began her cattle futures trading.

In Spring 1978, McDougal approached Clinton and Rodham with new proposal: to join with him and his wife Susan to buy 230 acres (0.93 km2) of undeveloped land along the south bank of the White River near Flippin, Arkansas, in the Ozark Mountains. The goal was to subdivide the site into lots for vacation homes, intended for the many people coming south from Chicago and Detroit who were interested in low property taxes, fishing, rafting, and mountain scenery. The plan was to hold the property for a few years and then sell the lots at a profit.

The four borrowed $203,000 to buy land, and subsequently transferred ownership of the land to the newly created Whitewater Development Corporation, in which all four participants had equal shares; Susan McDougal chose the name "Whitewater Estates"; their sales pitch was, "One weekend here and you'll never want to live anywhere else." The business was incorporated on June 18, 1979.

This period featured high interest rates in general, and by the time these lots were surveyed and thus available for sale at the end of 1979, rates had climbed to near 20 percent. Prospective buyers could no longer afford to buy vacation homes. Rather than take a loss on the venture, the four decided to hold on, building a model home and hoping for better economic conditions.

During the next several years, Jim McDougal asked the Clintons for checks for various interest payments on the loan or other expenses; the Clintons, believing themselves passive partners in the venture, later claimed to have no knowledge of the uses of these contributions. Concurrently, Jim McDougal had lost his job as the governor's economic aide when Bill Clinton failed to win re-election in 1980. McDougal decided to go into banking instead, and then acquired the Bank of Kingston in 1980 and the Woodruff Savings & Loan in 1982 renaming them the Madison Bank & Trust and the Madison Guaranty Savings & Loan, respectively.

In spring 1985, McDougal held a fundraiser at Madison's office in Little Rock that paid off Clinton's remaining 1984 gubernatorial campaign debt of $50,000. McDougal raised $35,000, and of that Madison cashier's checks accounted for $12,000.