Water restrictions will be introduced in Sydney if drought conditions don't ease in the next three months, according a report on dwindling dam levels in New South Wales.

Key points: Dam levels are dropping by about 11 billion litres of water each week

Dam levels are dropping by about 11 billion litres of water each week If levels fall below 50 per cent capacity, stage-one water restrictions will be introduced

If levels fall below 50 per cent capacity, stage-one water restrictions will be introduced A Sydney Water report found 62 per cent of Sydney residents were unaware of current drought conditions

The latest research from Sydney Water reveals levels across 11 dams in Greater Sydney are dropping faster than they have in decades.

Since April 2017, the levels have plummeted from 96 per cent combined capacity to just over 55 per cent and continue to fall by 0.4 per cent every week.

If levels fall below 50 per cent, it will trigger stage-one water restrictions for Sydney households — which bans hosing hard surfaces and limits watering gardens to times outside 10am to 4pm.

Sydney Water's executive drought lead, Catherine Port, said Sydneysiders were using 11 billion litres of water a week and called for homes and businesses to reduce their usage levels.

"Over the past 18 months we have seen some of the lowest inflows into catchment dams since before 1940," she said.

"Our water storages have fallen significantly over the last two years — it's time for all of us to look at on how we can save water."

Ms Port also said it was a misconception the drought was a uniquely rural or regional problem.

Sydney's desalination plant at Kurnell was turned on in January, after dam levels dipped below 60 per cent capacity.

The latest Sydney Water report found 62 per cent of Sydney residents were unaware of current drought conditions.

It also found over a quarter of inner-city residents, who are surrounded by green parks and gardens didn't think the drought would impact them.

"Sydney has had some good intermittent rain which has kept Sydney lovely and green and so it's understandable people don't realise that Sydney is in drought," Ms Port said.

The data from the report suggested heavy rainfall in March contributed to a lack of awareness about true drought conditions.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 47 seconds 47 s Rainfall in March created the impression there was no drought in Sydney. ( ABC News )

However, Ms Port said the state was suffering from sustained low levels of rainfall and above average temperatures.

"We would need significant rainfall to counteract the two years of below average rainfall that we've had," she said.

"April has been a particularly dry month and the outlook from the Bureau of Meteorology is for average temperatures and ongoing dry conditions."

NSW Water Minister Melinda Pavey said Water Rise Rules — which recommend reducing shower time and fixing tap leaks — applied to everyone in Sydney, the Blue Mountains and Illawarra.

Premier Gladys Berejiklian said 99 per cent of the state was in drought and "has been for some time".

"It is now impacting our dam levels which is why we kicked off the desal plant and we're looking at all those issues," she said.