The 10m wide hole is currently stretching across Lucas Road in Burwood, but at present is very shallow.
Water is now gushing from the hole, but firefighters have been unable to say if it is coming from the mains or the sewers.
Firefighters specialising in hazardous materials have been sent to the outlet where the water drains into the Parramatta River.
“The drains are supporting the quick evacuation of this water,” Fire and Rescue Superintendent Adam Dewberry said.
“At the moment the road is holding together, but it appears the foundations underneath the asphalt have been washed away.
“I’d imagine there’s going to be some significant roles required at the moment.”
Residents on Lucas Street have reported a significant decrease in water pressure.
An exclusion zone has been set up in case the sinkhole widens and deepens.
The M4 Westconnex Tunnel remains open.
Lucas Street runs from Parramatta Road in Burwood down to the rail line.