Firefighters were called to the blaze, at a garden supplies factory in Altona North, just before 8pm (AEDT) last night, Metropolitan Fire Brigade communications controller Keith Robinson said.
It took about 80 firefighters more than an hour to bring the blaze under control and some stayed throughout the night to continue mopping up.
The factory is believed to contain fertiliser ingredients, and the collapse of parts of the building has made conditions difficult for firefighters.
"There appears to be a high fire load and the building collapse makes it hard to get water into the right spots," Mr Robinson said.
No one was injured in the blaze but the building suffered severe structural damage.
Thick, plumes of smoke from the factory fire in Melbourne's north blankets the city. (Twitter user @MickArena)
Large plumes of smoke clouded the sky and travelled in a south-westerly direction, with residents urged to shelter inside from the smoke and keep all doors and windows closed.
Fire authorities also issued a watch and act warning for residents in Yarraville, Brooklyn, Braybrook and several other surrounding suburbs at 10.30pm.
Investigators are expected to attend the scene this morning to establish a cause for the fire, which is believed to have caused $1 million in damage.
Police also attended the scene and urged all residents in the surrounding suburbs of Altona North, Newport and Brooklyn to ensure they stay indoors and.
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