Welcome Bay resident Alison Dunlop said the house was "well-ablaze".
"[There were] Huge plumes of smoke," she said.
Dunlop said firefighters were at the scene trying to get the blaze under control.
A resident nearby, who did not wish to be named, said she could see the fire coming from a home on Flinders Place.
"We heard sirens and looked out the window to see thick black smoke," she said.
The resident said fire engines had just arrived at the scene.
A Welcome Bay resident said he could still see flames licking around the home's back porch as another fire truck arrived.
"The whole area has been blocked off. There's a crowd of people on the side of the road."
More soon.