The dire situation, which has been described as "unprecedented", will force Mid Coast Council to truck in supplies from other parts of the local government area.

The Gloucester water scheme is dependent on the flow of the Barrington River. About 40mm of rain on Barrington Tops in late November provided a few weeks reprieve, but the town water supply is expected to run out in a matter of days.

"The Barrington River has never ceased flowing in recorded history," Mid Coast Council general manager Adrian Panuccio said.

"We've put arrangements in place, just in case this occurs, and there is a possibility that this summer we may need to supply Gloucester from an alternate water source."

The water supply serves Gloucester and nearby villages, including Barrington and Forbesdale.

There are 1800 customers in the scheme and the water is used by about 4800 people.

Mid Coast Council has plans to truck water to Gloucester from the Tea Gardens/Hawks Nest aquifer - about a round trip of about 200 kilometres.

Mr Panuccio said the NSW government would subsidise transport costs by more than 90 per cent, significantly reducing the cost to council.

The town's residents are already adhering to level-four water restrictions, which ban any outdoor water use except for using recycled or grey water on gardens, but could face "emergency" level water restrictions in January.

The council is still considering what those restrictions would entail, but locals are already asked to limit showers to under three minutes.

Publican of Gloucester's The Roundabout Inn, Stewart Carruthers, said it was a "sad" predicament.

"This is the worst we've seen it," he said. "We've had droughts before but we've always had water. It's going to have an affect this Christmas. The local caravan park, they've had 70 per cent of their bookings cancelled."

The publican said locals were doing all they could to conserve water.

Hotel staff were "even saving the ice cubes" out of drinks to throw in a bucket so the pub's plants could be watered.

The council's director infrastructure and engineering services, Graeme Watkins, said it was "important to note, that just a low amount of rainfall at Barrington Tops will often provide good river flow and could potentially relieve the situation".

"What residents urgently need to do, is comply with the severe level-four restrictions now in place - there is a total ban on outdoor water use," he said.

"We also urge everyone to be mindful of their water use indoors too, and reduce and reuse water wherever possible."