This study investigated the effects of active tectonism on the construction of hydraulic structures. Apart from the effect of dynamic loads, active tectonism can cause permeability problems. The focus of this study was on overcoming the permeability problems considering the economic yield in terms of grout curtain design and optimum dam axis location. The ground permeability of dam locations is one of the decisive factors affecting the feasibility and economic yield of dam construction. Techniques (such as grouting) for ensuring ground permeability reduction are generally expensive and time-consuming; the experience at the first location of the Turgutlu Dam is a case in point. Construction of the first location of Turgutlu Dam was planned on a fault terrace that is part of the North Anatolian Fault Zone, which is the most important active tectonic feature in Turkey. A grout curtain was planned to provide permeability reduction and ground treatment for the terrace material. However, the base elevation of the adjacent valley is deeper, and thus potential leakage to this valley was expected. In spite of its big reservoir area, the Turgutlu Dam Project became infeasible in terms of economic yield due to the ground remediation (construction of grout curtain) costs for this location. To solve this problem, the dam was relocated downstream to avoid the fault terrace, choosing an optimum grout curtain to minimize cost and improve water retention of the reservoir, and increase economic yield of the dam.