A wall around Toddbrook Reservoir in Derbyshire has been damaged and images appear to show a huge hole in the dam wall.
Derbyshire Police told Whaley Bridge residents to head to a local school amid fears that the wall could collapse.
A spokesman said: "Officers and staff will be at the school to give further direction but at this time we aren't sure how long the evacuation will take.
"Please make alternate arrangements to stay with friends/family, ensure that pets and medication that may be needed for a number of days are taken."
The Environment Agency has issued a severe flood warning, suggesting a danger to life, covering the River Goyt at Whaley Bridge. It states that the river could "rise rapidly" due to water rushing in from the reservoir.
Anna Aspinall, 36, from Whaley Bridge, told PA she and others wanted to help by placing sand bags in the area around the dam but were sent away after structural engineers advised "that the wall is at high risk of failing".
She said: "We have had significant rainfall over the past few days resulting in the overflow of the reservoir, which is very rarely breached, being completely flooded over.
"The result is that the overflow this morning has undermining damage and there is a big risk of the village being flooded out. Residents are currently being evacuated along with businesses."
"We are praying (the dam wall) holds whilst the Canal and River Trust try to drain the water from the reservoir. I live at the top of a hill but am very involved in community life so want to help where I can," she said.
As a helicopter hovered above the village, police officers were going door to door in Whaley Bridge to get everyone out.
Going the other way were teams of council workers and mountain rescue vehicles heading into the village.
Dragging a suitcase of possessions up the deserted high street, local David Holt said: "Police are knocking on, evacuating everyone within risk of that dam wall breaking.
"If it's going to go, it's going to go straight through the village.
"Police are asking you to gather some belongings, leave your house in a secure condition and go to a local school.
"We've taken an elderly neighbour to a friend's house and are heading to the school now."
The Environment Agency said its teams were out in Cheshire, Derbyshire and Greater Manchester, where intense rainfall had caused flooding and disruption on Thursday.
It urged people to say away from swollen rivers and to avoid driving through flood water. It issued a series of flood warnings covering central, north-west and north-east England.