Level-three water restrictions could be fewer than 100 days away, NSW Water Minister Melinda Pavey says.
Level-two restrictions started on Tuesday across Sydney, the Illawarra and the Blue Mountains as Sydney's dam levels fall to 45 per cent.
Residents will be required to use a bucket or can when watering gardens - before 10am and after 4pm - or when washing their cars.
People have also been asked to take four-minute showers while the refilling of pools and spas will be limited to 15 minutes a day.
Ms Pavey on Monday said level-three restrictions - due when Sydney's dam levels reach about 30 per cent - could be required from March based on current water usage and rainfall.
But she hopes the implementation of level-two restrictions will save almost 80 gigalitres of water as drought continues to bite.
Level-two restrictions are typically enforced when greater Sydney dam levels reach 40 per cent but were last month brought forward to December 10 by the government.
"That is a real challenge for a lot of people, I understand that, but we do ask you to respect that," Ms Pavey told reporters.
"We brought forward level-two restrictions because the size and scale of the drop of water into Sydney was unlike anything we've ever seen before."
Ms Pavey said level-three restrictions - the rules for which are yet to be announced - would have a greater impact on businesses and major water users.
But she hopes the drought will break before that's required.
"I hope we get summer rain (but) it's always a watching brief - we have to look at the evidence, at the inflows, outflows," Ms Pavey said.
Sydney Water's executive drought lead Catherine Port said 120 warnings and two fines had been issued to date for level-one water restriction breaches.
Potential fines of $220 for residents and $550 for businesses apply for level-two breaches.
Level 2 restrictions effectively ban the use of hoses for lawn and garden care and car washing.
- You can only water your garden before 10am or after 4pm with a watering can or bucket.
- Smart and drip irrigation systems may only be used for 15 minutes before 10am or after 4pm.
- The use of unattended hoses is no longer permitted.
- Hosing of hard surfaces is not permitted, unless in an emergency.
- You can wash your car with a bucket or at a commercial car wash.
- You will need a permit before filling a pool of any size.
- with AAP