Fraser Coast Regional Council officers are working to determine if the commercial building on Torquay Rd has been used as a "place of worship".
The property is listed as a Hervey Bay Mosque online athttp://www.muslimdirectory.com.au, with worship hours from 1pm to 2pm Fridays.
Divisional councillor Stuart Taylor told the Chronicle a complaint had been received and the council's officers were investigating.
"We're working with the owner to ensure issues are addressed," he said.
In the council's planning scheme a place of worship is defined as a "premises used by an organised group for worship and religious activities" and must have appropriate zoning.
Building owner Hamd Rehman confirmed people did meet at the building each week for prayer services.
He said he had approached the council to discuss what the building could be used for.
"This is a community centre and it is used on a regular basis," he said.
"I don't know (if) you call it a meeting place for worship."
Dr Rehman said 10 to 15 people meet to pray every Friday.
According to the council's planning website there are no development applications on the site.
A member of the Bay's Muslim community, who did not wish to be named, said he did not know about the site on Torquay Rd being used as a mosque, but he had heard of plans to develop it.
"There was some planning of having a community centre there but I don't think of anything about a mosque there," he said.
He said he understood the centre would be used as a meeting place where people could do charity work.
He said there was not enough demand on the Fraser Coast to warrant the development of a mosque.
"I don't think there are enough families to want something like this," he said.
"There are only about six families here in Hervey Bay.
"A well established mosque, I don't think will happen here."
Earlier this year Hervey Bay hosted a Reclaim Australia rally, prompting division in the community.
Hope for Humanity president Amanda Edwards said the community should be open to multiculturalism.
"We should accommodate them - the freedom of religion," she said.
"They've absolutely got the right to be here."
Ms Edwards said her peace group had lost a community event due to the discriminatory reputation the Fraser Coast was getting.
"People are already starting to see Hervey Bay as the racist capital of Queensland," she said.
"I don't want us to be known for that - we should be an inclusive community that wants to spread our beautiful message."
Ms Edwards was worried the violence in Bendigo, Victoria would also happen here if the council was forced to debate a development application for a mosque.
"It really concerns me that we might become Queensland's version of Bendigo," she said.