(written from a Production point of view)
The idea of surreptitiously transplanting an indigenous people by use of the holodeck had already been explored in Star Trek: The Next Generation's episode "Homeward" when a group of Boraalans were transplanted in the holodeck of the USS Enterprise-D without their knowledge to their new homeworld as their own world became uninhabitable. The concept of the holoship might have stemmed from this incident. The Federation holoship was one of the very few major specialty Federation starships, if not the only one, ever shown in the Star Trek franchise and as such presented its unique problems when it came to designing the ship. According to John Eaves, the ship was redesigned to appear more like an oil tanker or storage ship and given a shape that would easily fit into the Ba'ku lake. (The Secrets of Star Trek: Insurrection, p. 96).
The Federation holoship was designed by John Eaves. Early sketches of the holoship featured a more typical Starfleet configuration with a saucer section and warp nacelles and the registry NX-75115. Eaves commented on his design process, "The holoship went through a lot of changes. Originally it was a traditional Federation design, so I started out with a saucer section. The way the village was designed, it lent itself well to that [shape] - a saucer would be the best place to encase that holodeck image." (Star Trek: The Magazine Volume 1, Issue 4, p. 30), and, "Also, a dish section seemed as if it would be capable of capturing not only just the village, which has a circular pattern, but some of the surrounding area too." (The Secrets of Star Trek: Insurrection, p. 95) Rejected by Director Jonathan Frakes and Producer Rick Berman, who wanted a more industrial look, Eaves returned to his drawing board and came up with a "Guppy"-like design, one Eaves himself took a shine on, "They wanted to go with something more freighter-looking. So I went through another stage where it looked like a Guppy, one of those old 1950s cargo planes. That was my favorite one."
No matter what Eaves' personal preferences were, "They felt it still looked too 'starshippy,' so we got rid of that and then moved onto the 'flying brick.' They wanted something very tankerish, like an oil tanker. I kind of beveled the sides, and at one point the cockpit was at the very back of the ship, just like a tanker. So that went for a while, and then they had it moved to the front. That was the shape that Berman really liked." (Star Trek: The Magazine Volume 1, Issue 4, p. 30) Eaves later recalled on his blog:
"In Star trek "Insurrection" A Massive Federation Holo-ship was called for and the following sketches show the process of how this one came to be. The early designs featured a saucer style ship, then transformed into a pufferfish, and finally a flying shoe box. The first two were my favorites and I didn't really care for the flying brick, but it was what was chosen so I took most of the inspiration from Giant Oil tankers. In the first pass there was a bridge at the front of the ship and by the final design the bridge moves to the rear of the vessel. Jerry Goldsmith Composed the score for this one and I liked the metallic theme he wrote for it much more than the final design. I also included the orthos but to achieve the same look simply get a shoe box, spray it completely with super 77, and then roll it thru a pile of legos and old model parts!!! HAAA! I am not really cranky if that is how your reading this, I was laughing and remembering all the silly horrors that came from this movie in regards to one of our supervisors... He was always changing the direction on which way things were to fly after the fact that they were approved renderings being built and lit in CG. This unnamed guy was really something!! (...) OH yeah and the unnamed guy also changed the scale of the ships from shot to shot!!! I can’t even remember how many times I would have to run over to his office to try and correct all the insanity!!! It was during this film in particular that scale charts and directional arrows were attached to EVERY drawing. There is a shot in the film where all the vessels fly under the camera to take orbit, that is the closest to all the accurate scales."Began in January, Eaves finished up in February 1998 on the design, and produced a set of orthographic views of his designs for the modelers at Blue Sky/VIFX.
Eaves intended his final design to be 810 feet (247 meters) long. 
For Star Trek: Insurrection, the producers decided to complete the transition into the digital realm and that this feature would be the first movie completely without the time honored motion control model photography. However, in this stage of the technique, that meant that the CGI-workload had to be divided between two VFX-houses, Santa Barbara Studios for the outer space shots, and Blue Sky/VIFX for the planet bound effects. As the holoship featured prominently on the surface of Ba'ku, the task of modeling the ship fell at first to Blue Sky. For expedience sake, a thirty-inch scanning model of the upper half of the model was constructed by Mykel Denis, Tom Griep, and Tamara Waters, thereby saving the CGI modelers at Blue Sky the time to construct the corresponding wire-frame model freehand. (Sci-Fi & Fantasy Models, issue 34, p. 26) It was only when this model was sent to the producers for approval that they realized that, despite their scrutiny, they had made an error in judgment. Eaves had positioned the bridge on the back of the vessel, reminiscent of the bridge on a 20th century supertanker. This presented them with some unexpected headaches, as Blue Sky's Model Shop Supervisor Carlyle Livingston explained, "This caused some concerns about logistics. Keeping the bridge positioned as it was in John's sketch meant there would be an expanse of ship seen out of the window every time you looked forward – which would be both tougher and pricier than just seeing the usual starfield. We moved it up front, then built a few different bridge conning towers before they signed off on it." (Cinefex, issue 77, p. 83) He further added, "When Rick Berman and Peter Lauritson and everyone else involved looked at John's drawings, what appeared to be the front was, unknowingly, the rear view. So, when this was pointed out, they had a hard time visualizing the ship any other way than what their original perception was. Therefore, because of that presumption and the shots needed, the ship was turned around 180 degrees, forcing revisions to the engine nacelles and the location of the conning tower. And because the Holoship had to look like it was holding an entire village inside, perception of Human scale was important. Rick and Peter commented on the hatch needing to be bigger. So there changes were made. It's part of the process of finding out just what's right." (Sci-Fi & Fantasy Models, issue 34, p. 29) The revisions were done in April after Eaves revisited his design and modified it by adding an articulated bridge module on front of the ship, annotating on his sketch "The ever so modified Holo Ship Drawing".
Yet, Eaves' efforts notwithstanding, his revised holoship design was eventually not followed by the modeler at Blue Sky/VIFX, most likely out of time and costs considerations. Instead it was decided to merely reverse the flight direction of the model (resulting in that, what Eaves intended to be, the impulse engines were consequently forward facing), which was constructed as a CGI model by Digital Modeler Robert Rioux, who constructed and mapped the wire-frame model, and Digital Effects Supervisor Mark Rodahl, and Compositing Supervisor Edwin Rivera, who rendered, lighted and animated the model. (Cinefex, issue 77, pp. 83-84) Since Blue Sky was only responsible for the planet-bound effects, where the ship would merely be seen sitting in the water, only the top part of the model was constructed, as was with the scanning model. After Blue Sky was finished with their part of the ship, they would turn over the data files of the model over to Santa Barbara studios for their part of the work.
However, it was not only the visible part they had to visualize, but also the invisible part, which did not go off without a hitch as Digital Artist David Stephens remembered, "I was the R&D supervisor at VFIX working on the ST9 holoship digital water effects. I do remember a physical mock-up being around the office at one time, but all of our digital work was done with a CG model supplied by another company... not sure though if it was from Blue Sky (which was our sister company at the time) or from Santa Barbara Studios. I will mention that we internally finaled a far better version of the "invisible" holoship effect than was eventually in the film. Originally we had standing pools of water on the top of the ship reflecting the mountains, rivers streaming off the sides, and a lot more foam and wave interaction. Unfortunately one of the film's producers felt that the image was "too sophisticated" for Trek audiences. Imagine my shock and dismay. Ultimately, what was asked for was "an inverted ash tray in the water" with little or no interaction. Fortunately the finished imagery wasn't that simplistic, but it was disappointing compared to our original work."  Rodahl elaborated, "It was decided that the cloaked look would, in part, resemble one of those old glass ashtrays being dipped in a tub of water. Adding reflective glistenings of water dripping off the above-water section of hull helped bring out the ship's stealth-like nature, while the scale of the vessel was enhanced by adding a refractive element, as well as CG foam on the surrounding water to indicate the ship's "footprint" in liquid – the measure of displacement its presence created in the lake." Visual Effects Supervisor Jim Rygiel added, "Decloaking the ship in broad daylight meant matching the caustic ripple lighting, reflections and shadows present in the plate. The holoship reveal was an image-warping look that maintained the established Federation style" (Cinefex, issue 77, pp. 83-84)
After receiving the digital data files, Santa Barbara Studios revised the model for its scenes in outer space by modifying the animation and rendering, as well as constructing the missing lower half of the ship. It is one the very few models in the franchise that was co-constructed by two different companies. The model was built, rendered, and animated in the Maya CGI software. (Sci-Fi & Fantasy Models, issue 34, p. 29)