Mayor Anne Baker says algal blooms have been responsible for water discolouration that has appeared in hot weather in recent years.
Councillor Baker says diversion pipes have been installed around Culvert Dam where the algal blooms formed and contaminated sludge has been cleaned out of the system.
"Immediately council proceeded to scour the pipe network of Dysart which is really the issue that we're looking at now," she said.
"It's the sediment that's been settled in the pipes that has come through."
Councillor Baker says doctors initially told the council no one had got sick from the water, but she is investigating again after complaints from the community.
"We will be re-visiting the doctors in Dysart because if that is the case that's absolutely unacceptable," Councillor Baker said.
"The situation that's happened is unacceptable and council from the moment they've heard have done everything they possibly can to alleviate this issue."
Residents say water quality in Dysart has been fluctuating in the past couple of weeks.
Amber Chase says the water has been discoloured with a white foam when it comes through the taps.
"Every year around Christmas time for about a week it goes a bit bad but I believe that's from algae and stuff but usually not for as long as it has been," she said.
"They basically say it has been fixed but then you see the water going bad again.
"I guess this year we've sort of been a lot more onto the council and making it a bit more vocal."