Ann Angela, a spokeswoman for the Aruba Prosecutors' Office, said the dog is searching a small reservoir in northwestern Aruba that witnesses have previously identified as a location where Holloway's remains might be found.
Holloway, from Mountain Brook, Ala., disappeared in May 2005 in the Aruban capital Oranjestad. She was 18 at the time.
Angela said neither police nor prosecutors have any new information in the case, but they gave Dave Holloway permission to search.
Dave Holloway did not immediately return a message seeking comment. His attorney, Vinda de Sousa, told The Associated Press he insisted on another search of the reservoir after a witness who identified it as a possible location passed a lie detector test in the U.S.
De Sousa said she does not know how long the dog and its handler will remain on the island, nor how much Holloway is paying for the search. She added that the search had been planned for some time.
Holloway's mother, Beth Holloway Twitty, said she was not aware of the development and declined further comment.
Natalee Holloway was last seen leaving a bar with Dutch man Joran van der Sloot on the final night of a high school graduation trip.
No trace of her has ever been found despite extensive searches involving hundreds of volunteers, Aruban soldiers, FBI agents and even Dutch F-16 jets.
Dutch prosecutors have said authorities still lack proof they need to convict Van der Sloot, who has been arrested twice and released for lack of evidence.