A hosepipe ban on homes in Hyndburn will begin within the next 48 hours.
United Utilities will bring in the restrictions – the first in the north west for 14 years – on the majority of its seven million customers on Friday.
Neighbours will be relied upon to shop people breaking the ban and those caught can be fined up to £1,000.
The last ban began in the hot summer of 1995 and lasted 14 months.
Businesses including car washes and garden centres are unaffected.
Bosses at the water company are also applying for drought permits to release less water into rivers from Rivington reservoir, near Bolton, and at Longdendale in Derbyshire.
The ground is so parched that four inches of rain would have had to fall for depleted reservoirs to see any increase in water levels.
Britain has had its driest start to a year since records began in 1929, and the entire north west has been on drought alert for weeks.
John Sanders, the firm's regulation and strategy manager, said: "Despite some recent rainfall in the north of the region, reservoir levels are still significantly lower than we would expect at this time of year and are now at a point where we need to impose some temporary restrictions on our customers.
"It is not a decision we have taken lightly, but a hosepipe can use as much water in an hour as a family of four would use in one day.
"This ban will help us to safeguard essential water supplies to our customers if the drought continues."
Hosepipe bans are the first level of restrictions water companies can impose during a shortage.
They do not need permission from the government or the Environment Agency.
Current legislation only allows water firms to ban the use of hosepipes or sprinklers for watering private gardens and washing private cars.
People can still water their gardens with a watering can and wash their vehicles using a bucket and sponge.
If conditions worsen, water firms can apply to the government for a ‘non-essential use ban’ preventing people from using water for things like washing buildings, filling fish ponds or watering allotments.