The state government of Rio de Janeiro has declared a financial emergency, just seven weeks before the Olympic Games is due to begin.
In a decree, governor Francisco Dornelles warned the crisis "may lead to the total collapse of public security, health, education, mobility and environmental management" in the state.
To make sure the Games can go ahead, the decree authorised "all necessary emergency measures to ration essential public services".
Brazil's interim president, Michel Temer, has promised significant financial support.
There have long been concerns over Rio's readiness to host the Olympics, which are due to begin on August 5.
In addition to the financial worries enveloping a country mired in recession, Brazil has been blighted by the outbreak of the Zika virus, which has prompted many athletes to express doubts over their participation in the Games.