It is burning in orchard and grassland area located behind the Shepparton Market Place Shopping Centre, authorities say.
A State Control Centre spokesman said was a "pretty significant fire''.
"There is a threat to lives and property,'' he told AAP.
The fire is putting up a significant amount of smoke which can be seen across the Shepparton area, the CFA said in an emergency warning notice.
The authority advises residents to follow their bushfire survival plan.
The spokesman said 22 appliances were fighting the blaze.
There are so far no confirmed property losses.
Shepparton has a population of nearly 28,000 people with nearly 40,000 living in the nearby area.
The fire is approximately 4.5km from the Shepparton CBD.
- AAP