After months of drought, the Nepean Dam has spilled over after more than 700mm of rain drenched parts of the region across the past week.
The heritage-listed dam, south-west of Sydney, is at 100 per cent capacity and gushing into the Nepean River, WaterNSW said.
It comes as the NSW Rural Fire Service announced all grass and bushfires had been contained for the first time this fire season.
Last week Sydney's metropolitan dam systems were at 43 per cent capacity, but after 244mm of rain fell into the Warragamba catchment, the system is now at 75 per cent capacity.
Despite the heavy rainfall across NSW, Sydney Water said level-two water restrictions remained in place for Greater Sydney, the Blue Mountains and the Illawarra.
"While we welcome the rain, it's way too soon to see if there's going to be a start of drought recovery or a welcome temporary relief from the drought conditions," said Sydney Water's Peter Hadfield.
The downpour has been bolstered by multiple rain gauges around the Nepean system recording heavy falls as well as Cyclone Uesi looming off the eastern states of the country.
Bureau of Meteorology (BOM) duty forecaster David Wilke said many areas of NSW had recorded high levels of rainfall.
"Inland of Wollongong saw more than 700mm of rainfall, while Katoomba has had a high of 545mm, and quite a number of surrounding areas have experienced between 250-500mm, including Oberon, Mt Boyce and High Range," Mr Wilke said.
"To provide some perspective Adelaide receives around 550mm a year worth of rainfall."
Sydney Water has assured customers the water quality will not be affected by the overflow as preventative measures were installed to prevent contamination in early January.
WaterNSW installed curtains and booms in Warragamba Dam in January addressing fears bushfire silt and ash would compromise Sydney's primary water source.
"WaterNSW and Sydney Water have been taking a number of steps to ensure that any inflows of rubbish or ash or whatever doesn't have an impact," Mr Hadfield said.
"The water quality will certainly meet the Australian drinking water guidelines," he said.
The past week has brought as much as 400mm of rainfall in parts of Greater Sydney, according to the BOM.
The torrential rain soaking much of the state has significantly dampened over 100 bushfires, with only 24 blazes still alight.
The NSW Rural Fire Service said for the first time this season all grass and bushfires across the state were contained.
Deputy Commissioner Rob Rogers said it was good news following a "truly devastating fire season".
"Not all fires are out — there's still some fire activity in the far south of the state — but all fires are contained so we can really focus on helping people rebuild."
More than 30 bushfires have been extinguished in the past week.ABC