Buildings have been destroyed and power lines downed, while police say more people may have been hurt when what has been described as a mini-tornado hit the town about 7.30am (AEST) on Thursday.
At least one person is missing and a mother and daughter have been taken to hospital after being hit by flying debris, media reports say.
Emergency services say the picture remains unclear with numerous calls for help from residents in the area.
Local residents captured dramatic footage of the tornado striking Lennox Head, and of the destruction left in the storm's wake.
Mini-tornadoes off coast
Police inspector Shane Dean said he had seen "mini tornadoes" off the Lennox Head coast.
"As I look out at the ocean you can actually see what I'd describe as mini tornadoes out to sea," he told the Seven Network.
Local resident Taylar Rough told SBS she woke up to find her "whole house shaking".
"There was no power and it sounded like helicopters and jets were flying over my house," she said.
"I walked outside and saw a tornado two streets away causing a lot of damage. There was debris flying everywhere."
Roofs torn off houses
Another Lennox Head local, Andy Brown told the ABC he saw a twister cross the coast. "It sounded like a jet was coming in to land on our house," he said.
"The spiralling of the material just being ripped out the roofs as you would see in a tornado in America but just on a smaller scale.
"(There were) sheets of roofing spinning into the air and anything else that it can pick up. It's hard to explain, a friend of ours has been injured and they can't get out, no ambulances can get in because of the powerlines."
Police have urged residents to remain indoors.
Pacific Parade in Lennox Head has been closed to traffic because of power lines lying across the road.
Power lines brought down
Dave McGuiness whose local business, the Lennox Head Bakery, was missed by the storm said it was "chaos".
He told the Nine Network that the roof was torn off the local pub and it had been destroyed.
"Houses have been destroyed.
"It ripped the caravan park to shreds," he said, adding that the park had been left with only about four caravans still standing.
Mr McGuiness said SES, police and ambulance are now trying to sort the situation out.
One local resident posted a dramatic video of the tornado striking Lennox Head on YouTube, while another shot a video of the destruction in Lennox Head in the aftermath of the storm.
