Cyanobacteria have been found in the water, a blue-green algae that can produce toxic substances that are harmful to humans and animals when swallowed.
The algae can also be harmful through skin contact.
Dunedin City Council said warning signs would be posted at the popular dog walking spot until a check showed the cyanobacteria were no longer a threat.
DCC General Manager Infrastructure and Development Simon Drew described the risk as low.
“However, we are taking a precautionary approach.”
The reservoir water was lowered in August to carry out maintenance work on the valve tower and tunnel in the dam.
The low level means the water is warming more than usual, which could contribute to the algal bloom, the municipality said in a statement.
The reservoir will remain at its current level throughout the summer until maintenance work is completed.