Water leakage has been reported from several dams constructed on karst terrains in Iran. In this study the main reasons for dam leakage were identified by studying ten examples, the Lar, Kowsar, Seymareh, Tangab, and Shah-Ghasem dams with considerable leakage, and the Karun I, Karun III, Karun IV, Salman-Farsi, and Marun dams with negligible leakage. The “Potential Leakage Passage (PLP)” is defined as those parts of a karst aquifer which transfer reservoir water to downstream. The most important control on leakage is in the narrowest part of the PLP, the “bottleneck” that depends mainly on the geological settings. At the dams with negligible leakage, sealing of the PLPs was found to be technologically and economically feasible by connecting all the edges of grout curtain to the natural impermeable barriers. In the cases of dams with considerable leakage, wider PLPs were not completely sealed and the installed grout curtain did not fully connect to the impermeable rock. To reduce the risk of leakage and inform effective design of grout curtains, the characteristics of the PLP should be determined during the initial stage of dam studies, and incorporate geological and hydrogeological information in the ground model. This study highlights the significant risk of engineering project failures that can occur if hydrogeological conditions are not properly assessed, understood and managed early in development of dam location, design and construction.