The fire, which has already destroyed half the world heritage listed island, had crept within 700m of Happy Valley just before midday on Monday.
Queensland Fire and Emergency Services director Brian Cox says 90 firefighters and 24 water-bombing aircraft are defending the township.
Happy Valley's 50 residents have been urged to leave immediately, with the QFES warning the blaze "may pose a threat to all lives directly in its path".
People have also been told to prepare to leave the Kingfisher Bay Resort and Village about 20km southwest.
Mr Cox says backburning around Happy Valley's outskirts and continuous waterbombing runs will hopefully turn the tide on Monday.
He warned that heatwave conditions are set to persist in the "tinder-dry environment" all week.
"We are preparing for the worst type of thing and we're going to try to hit it with everything we have got today, we are pulling out all stops," Mr Cox told ABC TV.
Only about 10 residents have opted to leave the area, with the rest staying on to protect their homes.
The QFES director said most were actually trained or volunteer firefighters and emergency responders would protect them.
Elspeth Murray from the Happy Valley Community Association said overnight humidity and a drop in the wind had slowed the fire front, but 30km/h winds are expected later on Monday.
"It will be coming at us with a vengeance," she told the Today program.
Ms Murray is staying to defend her home in Happy Valley, and says locals have been preparing for severe bushfires for 18 months.
She said the community has worked on hazard reduction and built fire breaks under the direction of a resident who is a former Queensland Rural Fire Service inspector, with 30 years experience.
Ms Murray said the safety of the beach was only 200m away if conditions deteriorate .
"No one is being stupid, we know what we are doing," she said.
"We have been well-schooled in what often will burn down towns like ours - it's not the flames coming straight at us, but the ember attacks that happen and light up unattended property. So every home has been well and truly cleaned of leaf matter.
"Our garden is looking a lot greener than it should at this time of year only because we have been watering it solidly for the last three weeks to ensure that we don't have dry grass around. Neighbours have looked after neighbours here."
The NSW Rural Fire Service large air tanker, the Marie Bashir, is also flying to Queensland to help with water bombing efforts.
The plane can drop up to 15,000 litres on each run, while Queensland's leased air tanker can drop 10,000 litres at a time.
Mr Cox says having both large tankers along with other waterbombing aircraft will be a boost to firefighting efforts.
"We hope that the million litres of water we dropped yesterday will again be dropped today on that particular township area, and can hopefully save that town," he said.
The fire on Fraser Island, also known as K'gari, has been burning since mid-October.