BILLIONS of litres of water have begun cascading down the Snowy River in the biggest flow it has seen in more than 40 years.

Victorian Premier John Brumby and Water Minister Tim Holding travelled to Jindabyne, in south-eastern NSW, today to witness water returning to the Snowy.

More than 17 billion litres of water is flowing from the Jindabyne Dam following an agreement between the Victorian, NSW and federal governments to repay the Snowy "water debt'' two years early.

The release, three weeks before the Victorian election, fulfils Labor's 1999 promise to return environmental flows to the river.

Under the three-way agreement, the federal government will compensate Snowy Hydro $13.7 million for water released as environmental flows.

The water started spilling from Jindabyne Dam on Tuesday and will continue for another nine days.

It cancels out the "water debt'' accumulated by the two states during the drought-ridden last decade, after an agreement to return water to the Snowy was signed but before water saving projects were in place.

Another 16 billion litres of water will be released in April next year, taking total river flows for the financial year to 70 billion litres.

Mr Brumby said the government was on track to return the Snowy flows to 21 per cent by 2012.

"Flows in the legendary Snowy River are finally returning to levels that made it one of Australia's most iconic rivers,'' he said.

"The return of this water is a great result for the environment and a great result for Snowy communities that have fought for so long and passionately to get their Snowy River back.''