Police, fire crews, flood wardens and water and electricity engineers are taking part in the scenario.
Natural Resources Wales (NRW) said the role play will test evacuation drills.
Margaret Hughes, 91, died when the small north Wales city was inundated after the River Elwy overflowed in November 2012.
The case prompted a major overhaul of emergency evacuation procedures.
Mrs Hughes' inquest this month heard the vulnerable pensioner drowned in her Denbighshire home after she refused to leave despite flood warnings.
The hearing was told how Mrs Hughes was registered to received flood alert warnings, but her family did not receive them.
It also heard how rescue teams had to swim to homes submerged by the River Elwy deluge.
NRW said the multi-agency exercise on Wednesday and Thursday would see how the emergency services and local authority would respond to a similar flooding incident.
It said the operation would involve both a table-top exercise and live role play - including issuing flood alerts and warnings, putting up removable flood defences and testing the flood warden network.
North Wales director of operations for NRW Tim Jones said: "The flooding in 2012 was devastating for people in St Asaph, destroying homes and businesses, damaging infrastructure and unfortunately ending with tragic consequences for one family.
"We've been working hard to support the community in the aftermath of the flooding, and to make sure the city is better prepared to cope with flooding in the future.
"We've already made huge headway in improving flood protection, but this exercise will be a vital test of the plans we've made, and how all the agencies involved come together to work quickly and efficiently to protect people in such an emergency."

Elba, 42, has given the album the working title Murder Loves John.
"I'd like to dissect the idea of someone who has to deal with so much darkness," he told John Wilson on BBC Radio 4's Front Row.
Next week the actor releases his debut album, mi Mandela - inspired by Elba's African heritage and his role as Nelson Mandela in 2013's Long Walk to Freedom.
It is intended as the first of a series of albums which are character-inspired.
Elba said: "Detectives carry a lot of stuff. They meet someone who's done something heinous, but they have to have an objective perspective on them until proven."
"That could create some really good songs... and definitely an interesting mood, musically," he added.
The "character albums" are not Elba's first foray into the music world. The Wire actor released a five-song EP called High Class Problems Vol 1 in 2010, under the moniker Driis. He released an earlier EP - Big Man - in 2006.
He told Wilson he believed David Bowie would be a significant influence on the album.
"Luther listens to Bowie. He likes Bowie. John loves the idea that David's music is escapism for a complex mind."
"I'm not saying that I am going to make an album that sounds like a Bowie album. I'm just saying that would be an inspiration for some of the writing and songs."
Elba is due to return to the role of the troubled police detective in a two-part Luther special for broadcast next year.
He added he hoped to perform on stage in the near future and is in talks over a possible musical role.
Idris Elba appears on BBC Radio 4's Front Row on Wednesday 26 November, at 19:15 GMT.
Flood defence plans for St Asaph are being tested in an exercise, two years after it was swamped when a river burst its banks, killing an elderly resident.
[NEXT_CONCEPT]
Idris Elba is planning to release an album of music inspired by his BBC detective character Luther.