A section of the road is badly damaged following the burst.
Gardaí and council staff are at the scene and have put diversions in place while they assess the extent of the damage.
Homes and businesses in the Fahan, Burnfoot, Bridgend, Newtown, Burt and Manorcunnigham areas will experience reduced water pressure in the coming days while Irish Water locates and repairs this leak.
The burst is on the main trunk line carrying water from the Eddie Fullerton Dam outside Buncrana to the south Inishowen area and thousands of homes will be affected.