The department responsible for coordinating Australia's response to disasters and emergency management has shut its doors due to poor air quality.
A small bushfire has also broken out in an isolated section of national parkland in the ACT, but authorities said it did not pose a threat to Canberra.
Cool and calm conditions helped authorities contain the fire in the Namadgi National Park.
The Department of Home Affairs told staff to stay home on Monday as thick bushfire smoke blankets Canberra.
Staff were told to stay away from Canberra headquarters for 48 hours, but some essential employees worked from other locations.
The capital's air quality was the worst of any major city in the world on Monday morning, as winds carried in smoke from various bushfires in NSW.
The Department of Health relocated staff from its main office in Canberra to other buildings due to the smoke, but otherwise operated as normal.
Canberra child care centres were shut, with YWCA Canberra saying it decided to close all its centres to protect staff and children from the hazardous air.
Shops, museums and recreational facilities also shut their doors across the capital as air quality deteriorated.
The National Gallery of Australia said closing its doors was not only to protect staff and patrons, but also the art on display.
The gallery is hosting an exhibition of Matisse and Picasso works.
All Qantas flights at Canberra Airport were cancelled on Sunday due to the smoke.
Australia Post also cancelled deliveries in the capital, citing worker safety, leaving the local State Emergency Service to deliver particulate-filter masks to shops with depleted stocks.
Australian Associated Press