Earlier, officials sent scores of buses and dozens of high-water vehicles to help evacuate about 3,000 people along the shores of Lake Ponchartrain near New Orleans, as rising waters lapped against houses and left cars stranded. Floodwaters rose waist-high in some neighborhoods, and the Louisiana National Guard was working with sheriff's deputies to rescue people stranded in their homes.
The floodwaters "were shockingly fast-rising, from what I understand from talking to people," Lt. Gov. Jay Dardenne said. "It caught everybody by surprise."
Louisiana officials ordered evacuation of low-lying, sparsely-populated areas along the Tangipahoa River because a dam at a state park lake in southwest Mississippi near the Louisiana border was in danger of failing. Officials feared the water would pour into the already swollen river and flood low-lying areas downstream. Louisiana Gov. Bobby Jindal said officials may release water at the dam.
President Barack Obama has issued a disaster declaration for Louisiana and Mississippi, allowing federal aid to be freed up for affected areas. As Isaac moves away from New Orleans, the storm is surrounding areas of Louisiana and spinning off tornadoes across Mississippi and Alabama.
Lt. Vernon Smith of the Pascagoula, Mississippi police told ABC News that a tornado touched down at about 8:20 a.m., just south of town that sits 28 miles from Biloxi.
"It landed right on top of a house, just sat on it," Smith said, adding that people were believed to be inside. "There are people injured."
Two deaths have been reported. In Pearl River County, Mississippi, a tow truck driver was killed when a tree fell on his truck in Picayune, just across the state line from Louisiana. In Vermilion Parish, a 36-year-old man died after falling 18 feet from a tree while helping friends move a vehicle ahead of the storm. Deputies did not know why he climbed the tree.
Nearly half of Louisiana electrical customers lost power and another 150,000 were out in neighboring Mississippi.
Isaac arrived seven years after Hurricane Katrina and passed slightly to the west of New Orleans, where the city's fortified levee system easily handled the assault.
ABC News and The Associated Press contributed to this report.