Authorities have sounded a red alert (high alert) warning for blue-green algae for Burrendong Dam, which is located 30 kilometres south-east of Wellington, midway between Orange and Dubbo in the Central West.
WaterNSW said the presence of algae has not affected the town water supplies.
"Town water supplies remain unaffected and safe to drink," it said in a statement.
Burrendong Dam is also popular among residents for inland sport and recreation activities.
"A red alert level warning indicates that people should not undertake recreational activities where they may come into direct contact with the water, such as swimming, showering and washing," the authority said.
"Contact with the water may also pose a threat to livestock and pets.
"Boiling the water does not remove algal toxins."
WaterNSW said the species of blue-green algae identified are potentially toxic and may cause gastroenteritis in humans.
"People should not eat mussels or crayfish from red alert warning areas," it said.
"Any fish caught should be cleaned and washed thoroughly in uncontaminated water and any internal organs disposed of before consumption.