Brazil’s Environment Minister Izabella Teixeira has said the country’s three most populous states are experiencing their worst drought since 1930.
The states of Sao Paulo, Rio de Janeiro and Minas Gerais must save water, she said after an emergency meeting in the capital, Brasilia.
Ms Teixeira described the water crisis as “delicate” and “worrying”.
Industry and agriculture are expected to be affected, further damaging Brazil’s troubled economy.
The drought is also having an impact on energy supplies, with reduced generation from hydroelectric dams.
The BBC’s Julia Carneiro in Rio de Janeiro says Brazil is supposed to be in the middle of its rainy season but there has been scant rainfall in the south-east and the drought shows no sign of abating.
The crisis comes at a time of high demand for energy, with soaring temperatures in the summer months.
“Since records for Brazil’s south-eastern region began 84 years ago we have never seen such a delicate and worrying situation,” said Ms Teixeira.