Lower Hunter residents could be restricted to taking four-minute showers and washing cars and buildings with only a bucket of water as soon as Christmas.
Hunter Water has warned of an end-of-year rise to level-two water restrictions should no significant rain fall in coming months.
Water Minister Melinda Pavey announced on Friday that level-one restrictions would come into effect for the first time in 25 years on Monday, September 16.
"This drought is more severe than NSW has ever experienced," she said.
"While autumn and winter are typically the highest rainfall seasons for the Lower Hunter, the rainfall has not eventuated, causing the region's dams to fall to their lowest levels in more than two decades."
As the drought tightens its grip on domestic supplies around the state, an early move has been made to announce restrictions with Hunter Water's storage levels at 63.9 per cent of total capacity.
The water utility predicts storage levels will fall below 60 per cent - when level-one restrictions are implemented - by mid-September.
"It's been falling very quickly," Hunter Water executive drought response Darren Cleary said.
"This drought is quite severe. It hasn't just been dry, it's been very hot and warm.
"Across the state, we are seeing water-levels drop faster than they did in the Millennium drought."
Mr Cleary warned that level-two and even level-three restrictions were a possibility if rain did not fall.
"If hot and dry conditions continue, we could be at level-two restrictions by the end of the year," he said.
Acting CEO Graham Wood said there had been a reduction in usage on the back of awareness campaigns and an effort to reduce leakages but "without rain, we really can't avoid the restrictions".
"We know both the company and community have done their bit, but we need a little bit more," he said.
"We're appealing for that saving in level-one restrictions. We think we'll get around five to seven per cent and that would be crucial to maintaining our supplies."
Not since the early 1980s have level-two and level-three restrictions been imposed in the Lower Hunter.
Level 1 water restrictions - What you can't do:
Watering lawns and gardens
- Use sprinklers at any time
- Leave hoses or taps running unattended
Cleaning external hard surfaces (paths, driveways & concrete)
- Use a hose for general cleaning of hard surfaces such as paths, driveways and paved areas
- Leave hoses and taps running unattended
Washing vehicles, boats and buildings
- Wash vehicles, boats and buildings using a hose without a trigger nozzle
Filling private pools and spas
- Top up an existing pool without using a hose fitted with a trigger nozzle or device that can be turned off instantly
- Leave an unattended hose running in a pool
- Fill a new or renovated pool or spa over 10,000 litres capacity unless you have a permit and an approved pool cover