Hay River is on the south shore of Great Slave Lake, about 500 kilometres by road from Yellowknife.
The Canadian Coast Guard says Northern Transportation Company Limited reported a small amount of diesel fuel spilled Sunday at about 4 p.m.
NTCL barges cargo from Hay River to communities along the Mackenzie River and in the Western Arctic.
Kathleen Groenewegen, who lives near the beach, said she noticed a fuel smell in the late afternoon.
"By the time we got home at about 9, 9:30, the fuel smell was very strong at our house and so we took a walk down to the beach and saw a substantial fuel sheen on the water kind of spanning the whole full length of the beach," she said.
The coast guard says NTCL has begun cleaning up the site and Transport Canada will be doing an inspection Tuesday.
"It can't really be mopped up too well but usually the way diesel is cleaned up is with time through evaporation and sunlight," said Dan Bate with the coast guard.
Andrew Cassidy, mayor of Hay River, says he knows some people were concerned about fuel getting into the town's water intake but they don't anticipate any contamination.
"From our understanding it's a light fuel, so it will be staying near the surface," he said. "That's our understanding and the actual intake pipe is located five miles out and is 70 feet deep."
Cassidy says the town always monitors the water it's getting out of the lake and it would be able to tell if there was any fuel in the system.
Cassidy says the town has stepped up monitoring while the clean-up is on.