Heavy smoke has been blowing into the city from a large fire near Warragamba Dam near the Blue Mountains, the NSW Rural Fire Service says.
"An overnight temperature inversion will trap the smoke in the Sydney basin. This means smoke will settle in many areas and be very heavy," the RFS said in a statement.
"Smoke is also affecting areas including the north coast, Central Coast, Hawkesbury, Wollondilly, Queanbeyan and Shoalhaven areas."
The NSW environment department says this season's bushfire emergency has caused "some of the highest air pollution ever seen in NSW".
"Recently NSW has experienced elevated levels of pollutants as a result of smoke from the bushfire emergency, and dust caused by the severe drought," a spokesman said.
"NSW has experienced other periods of poor air quality that lasted several weeks, including the 1994 Sydney bushfires and the Black Christmas bushfires of December 2001 to January 2002.
"This event, however, is the longest and the most widespread in our records."
The NSW Rural Fire service has issued widespread total fire bans for Thursday, with hot and windy conditions expected to worsen across the state.