This article explains the backstory to Alan Wake, with the events shown in chronological order.
Bright Falls was built as a small mining town near Cauldron Lake to support the miners of a nearby mine. It soon developed into a tourist attraction due to the popularity of the Elderwood National Park.
With the rising popularity of Bright Falls, rock legends Tor and Odin of the band "Old Gods of Asgard", had bought a farm there, in which they made residence. The farm, soon dubbed "The Anderson Farm", was situated next to Cauldron Lake. The brothers used ingredients from the farm to make their moonshine, along with water from the lake.
When they started drinking the moonshine, it made them feel powerful, not because they were drunk, but because of the effect the water. There was a Dark Presence in the lake, and it made them feel as though they really were Gods; as though the stories within their songs were coming true. In drinking water from the lake, they, metaphorically speaking, woke up the Dark Presence. It wanted to be free, but it could only do so by following scripts and stories written through creative mediums, such as novels, songs and paintings.
The brothers continued to drink their moonshine. With the Dark Presence inside them, it eventually gave them both dementia.
Thomas Zane, a poet, had come to stay in Bright Falls. He stayed in Bird Leg Cabin, a house situated on a small island in Cauldron Lake. He came to Bright Falls so that its beautiful landscapes could give him some creative inspiration. Tom was a keen diver and would frequently do diving excursions within the lake.
Tom had an assistant named Emil Hartman. Emil had discovered the power of the lake, and was eager to see what effect it could have on the world.
While in Bright Falls, Tom met Barbara Jagger, who he soon fell in love with. Barbara grew an interest in Tom's writing, just as Tom grew an interest with the lake. He heard a legend that there was a treasure deep within it. Tom also met many of the other town's folk, including Cynthia Weaver, who was jealous of Tom's relationship with Barbara. She too had a crush on him.
Tom stopped writing after he discovered the mysterious power of the lake (i.e. the Dark Presence that the Anderson brothers awakened). Instead, he began to look for the treasure within the lake. He told Barbara about this, which caused her to go looking for it. However, she never came back. Tom immediately rushed into his diver's suit and went to find Barbara. However, he couldn't find her, and returned to Bird Leg Cabin alone.
Emil told Tom that there was still hope; that he could bring Barbara back by writing her back to existence. Tom did so, ignoring his fears of the lake. Barbara came back.
There was something very different about her. Her behavior was different to her usual compassionate self. After many days, Tom discovered that she was not Barbara Jagger, so he tied her to a chair and, in his rage, cut out her heart with a knife. However, in doing so, he discovered that she did not have a heart.
Tom decided to use the power of the lake to reverse what he had done; to destroy everything that he had created, and to destroy the power of the lake. He wrote a manuscript detailing future events that would take place in Bright Falls. Not much is known about exactly what he wrote. He turned Cynthia Weaver into "a crazy lamp lady", who was obsessive about the light. He tasked her with the job of protecting the town by keeping it in light. He made her live in the town's power plant so that she could insure that the town would always have power for the lamps to work. He also wrote that he would become a bringer of light, so that he could keep the Dark Presence at bay. It is also possible that Tom wrote about Alan Wake and how he would eventually defeat the Dark Presence.
Then, Tom wrote himself out of existence. He wrote that everything that he had written would be destroyed and forgotten, with the exception of the contents of a shoe box. The box contained an old light switch and an extract from his manuscript that described what Alan would do to destroy Barbara Jagger.
So, as a final attempt to kill the being that wore his Barbara, he put on his divers suit, picked up Barbara - still tied up - and walked down into the lake. It was his last dive. He never came back.
It was assumed that they had both died, which gave the island that Bird Leg Cabin was situated on its name: "Diver's Isle".
The thing that wore Barbara's face had survived Tom's attempted murder. The Dark Presence began to use her as a medium to communicate with others; to get them to do what the Dark Presence wants.
Later, there was an earthquake that caused Diver's Isle to fall into the lake, lost forever.
Meanwhile, Emil became a doctor had converted an old hotel by Cauldron Lake into a lodge for creative people with mental health problems and illnesses. He wanted to use the minds of creative people to change the world.
In the present day, Alice Wake had become worried about her husband Alan Wake, who had writer's block. He was also getting into a bad state, getting drunk each night and returning to his home very early in the morning. Alice discovered Dr. Emil Hartman and his lodge in Bright Falls. She was convinced by Dr. Hartman that Alan should visit him in Bright Falls for therapy. So, Alice goes with Alan to Bright Falls on vacation. This is where the story of Alan Wake begins.