Australian fire fighters on Friday said they have brought under control a massive chemical fire, but do not know how long it will take to extinguish the fire, which has sent a plume of potentially toxic smoke over Canberra.

The fire broke out in Energy Services International, a chemical factory, at Dacre Street in the suburbs of Mitchell in the Canberra's north, Australia Capital Territory at about midnight.

The fire lit up the suburbs with flames leaping hundreds of meters in the air, with about 20 to 30 explosions were heard around 2:30 a.m., and several more later in the morning. Reports said a column of toxic smoke was billowing up more than 800 meters in the air.

There are reports that there were about 400,000L of toxic chemicals in the building. However, authorities said all chemicals had been contained at the site and no material had leaked into the storm water system.

Australia Capital Territory Emergency Services spokesman on Friday afternoon confirmed that the smoke is dissipating, and the exclusion zone has been reduced from 10km back to just the suburbs of Mitchell.

Firefighters said that they have the fire under control and contained within the building.

"The Australia Capital Territory Fire Brigade is attacking the fire directly with foam," a spokesman told reporters in Canberra.

About 100 Mitchell residents and campers at the nearby local show ground were evacuated. With the situation coming under control, residents are allowed to return home.

Tahlia Dwyer lives about a kilometer away from the industrial estate and was woken by explosions about 2:00 a.m..

"We were woken by these huge banging noises and the way that the house was a little bit shaking, we all thought someone might have been on the roof," she told reporters in Canberra.

"After a while we just all got up thinking what is this? It was quite serious the noise and that is when we looked out the window and saw the huge fire."

"Last night we could see the flames from our house. You can't see them now but you can just see massive plume of black smoke just all across the sky."

Atmospheric tests of the smoke have found almost undetectable levels of phosgene which is contained in the by-product of the substance being burned. Phosgene is known to cause irritation to skin and eyes, sore throat, nausea, headaches and dizziness, vomiting, chest pain and difficulty breathing.

Australia Capital Territory State Emergency Services Commissioner Mark Crossweller said testing will continue throughout the day, adding that exposure to dangerous chemicals is low.

"The readings are looking good," he told reporters in Canberra. "The inversion layer that we've had overnight is lifting, that's allowing the smoke to actually rise and disperse."

At this stage there are no reports of casualties.

All government schools on the northside of Canberra, including Belconnen, Gungahlin and the Inner North, will be closed on Friday.

Bus services has been resumed, but some roads remain shut. The blaze did not disrupt air travel.