An army bomb disposal team is examining a suspicious object at Glenrandel in Eglinton.
The road has been closed since early on Thursday morning. The Foyle arena on the Limavady Road is open for residents seeking shelter.
Jenny Bell lives in Glenrandel and her elderly grandparents had to leave their home.
She said it was a "big shock wakening up to this news".
"My granny is recovering from cancer and my granddad has Parkinson's disease," she said.
"There are a number of elderly residents in the area. It is all going on outside our front door.
"We have been advised to stay inside. We have never had anything like this in Eglinton before."
A number of homes in Londonderry have been evacuated because of a security alert.