With school wrapping up this afternoon, plans to relax at the dam to ring in the season may have to be postponed, or cancelled.

The alert was issued on Wednesday morning, warning people not to undertake any recreational activities on the water.

Water NSW said the kind of blue-green algae detected is potentially toxic, so swimming, drinking or even entering the water could cause health issues, like gastroenteritis.

Those fishing are warned not to eat fish, mussels or crayfish from red level warning areas, and boiling the water will still not make it safe.

While town water supplies remain safe, Water NSW said stock should be removed from the foreshore of the storage area.

"The Peel River downstream of the storage is on a Green Alert, however conditions can change quickly. Therefore, stock and domestic users downstream of the storage and users of the Dungowan Pipeline should monitor water supplies for algae scums and use alternate water supplies if they suspect unusual concentration of algae," a Water NSW spokesperson said.

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Blue-green algae usually appear as green paint-like scums on the water, near the edges, or as greenish clumps throughout the water. It makes the water appear dirty, green or discoloured and generally has a strong musty or earthy odour.

A guide to the identification of algae can be found on the WaterNSW website.