Aborigines of the Awabakal nation lived in the area surrounding what is now known as Lake Macquarie for thousands of years. The name Awaba, which means "a plain surface" was used to describe the lake.
Lake Macquarie was discovered in 1800 by Captain William Reid, who had been sent from Sydney to retrieve a load of coal from Newcastle Harbour. Reid took a wrong turn and found himself in a lake rather than a river, with no coal to be seen anywhere. The name "Reid's Mistake" was retained until 1826, when it was renamed in honour of Governor Lachlan Macquarie.
Governor Macquarie did like having shit named after him. Can't turn around in Australia without seeing some street or building etc named for him.