The town's centre was described as a ghost town after water breached the banks of the Katherine River, swamping low-lying areas and inundating about a quarter of the town, with about 600 residents evacuated from their homes on Thursday.
The Bureau of Meteorology recorded the river height at 18.95 metres shortly after 4am (CST), just three centimetres below the Katherine Bridge.
The bureau has forecast fine weather for Katherine for Friday, but is warning of monsoonal showers over the eastern Top End and Gulf Country.
Police spokeswoman Katie Woolf said cleaning up the town may not start immediately.
"I think we're just going to hang in and see whether the river continues to drop," she said.
Police have asked locals not to enter the area and to take care when leaving their homes, with water starting to breach the river's banks at O'Shea Terrace.
All stores will remain closed and residents have been asked to avoid any unnecessary car and boat travel, particularly on the Gorge Road.
It is Katherine's second major flood in eight years. Four people were killed, half the population had to flee their homes and all businesses in the shopping area were flooded when the Katherine River rose to a record 20.3 metres in January 1998.