© GoogleMap showing the location of the Lennox Head twister
Twelve houses were destroyed and debris was sent flying when the storm, which one witness said hit "like a bomb", careered in off the sea about 7:30am (AEST).
New South Wales Premier Kristina Kenneally said the tornado caused "widespread devastation" and police said more than 30 houses were damaged.
But Inspector Gary Cowan from Richmond Command says only two people have been taken to hospital.
"When we look at the damage it's just a miracle that no-one was seriously injured or killed," he said.
There are 10 people gathered at an evacuation centre at the Lennox Bowling club but police expect that number to increase as people arrive home from work.
© Dirk TerrillA tornado forms over Lennox Head on the northern NSW coast
The SES has received nearly 100 calls for help in the area, but wet weather is hampering the clean-up.
A local surfer said he saw two waterspouts charge up the beach as the tornado hit.
Dirk Terrill, 27, said he could hear homes being damaged as the tornado hit the town.
"There was one [spout] coming up the beach and the other one just went through the middle of Lennox, so we could literally hear the roofs getting ripped off the buildings and smashing into ... trees and that sort of thing; pretty crazy," he said.
"I surf down there a fair bit so we see them (spouts) off the coast when it's storming or raining out at sea, but to see them drop over the coast is nuts."
Bureau of Meteorology severe weather meteorologist Andrew Haigh said the tornado moved north from Lennox Head to Byron Bay before heading offshore again.
"It's heading further offshore now and that's where it will stay," he confirmed.
The low pressure system is moving south, dumping large amounts of rain but the bureau says Lennox Head has now seen the worst of it.
But it warns that anywhere south of Yamba and Byron Bay has the potential to see flash flooding.
© Ross TuckermanTornado hits Lennox Head
Lennox Head resident Andy Brown said he saw the twister crossing 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."
© Jayden AllenPart of a house lies in ruins after a tornado tore through Lennox Head
Another witness, Steve, said: "It looks like a bomb has gone off in parts of Lennox Head. It's really quite shocking."
Robert Hatcher, who was working at the local service station when the storm hit, said it was like "a big steam train coming".
"I looked out the door and just off the terrace of the beach you could see debris and stuff starting to float up into the sky," he said.
"Then it got really bad and then it started hitting the houses just north of the hotel and it took all the roofs off houses, boats off trailers, knocked down fences, sheds.
"Iron and that was just flying as high as you could see in the sky."
The ambulance service says three people who had been trapped by flood waters were able to free themselves from their cars at Uralba, inland from Ballina.
They did not need treatment from paramedics.
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