The Environment Agency has issued a severe flood warning indicating danger to life at Whaley Bridge, following damage to Toddbrook Reservoir.
It said river levels in the River Goyt could "rise rapidly" as a result of water coming from the reservoir.
The area is now being evacuated, Derbyshire Police said.
They tweeted: "Whaley Bridge is being evacuated due to the ongoing situation at Toddbrook Reservoir."
"If you are being evacuated then please start heading to Chape High School.
"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 warning continued: "If people do not have somewhere to go then they will be accommodated, however, there is limited capacity to do so. If you are unable to leave your own home and require assistance please contact 101 and ask for the police."
Residents in the pretty town have shared their concerns online, the Mirror reports.
One Twitter account read: "Some homes and businesses are being evacuated."
Another said: "The dam wall in Whaley Bridge is in risk of collapse".
One resident warned: "There are some very real concerns that the reservoir that sits over our small Peak District town of Whaley Bridge is going to collapse. If it does, it’ll cause chaos. It’s like something out of a movie! Keep safe neighbours!!! Xx."
High Peak Borough Council tweeted to confirm Whaley Bridge Memorial Park has closed for safety reasons.
A further warning for rain has been issued by the Met Office and is in force today until 8pm.
The Met Office said: "There is a small chance of fast flowing or deep floodwater causing danger to life."
Flooding will be worst in large parts of Cheshire, Staffordshire, Greater Manchester and Derbyshire.
Up to 20mm of rainfall is possible within an hour in some parts of northern England, according to the Met Office.
