Police and Queensland Fire and Emergency Services (QFES) were called to the Callide Power Station at Biloela shortly before 2:00pm.
A QFES spokeswoman said a turbine was on fire at the station and staff had been evacuated with a 550-metre exclusion zone having been set up while firefighting operations continue.
QFES has warned it was likely to be a "prolonged incident" and residents were urged to stay clear of the site.
QFES deputy commissioner Mark Roach said fire crews were working with power station staff to safely access the site.
Mr Roach said power was now off to the station site and any of the gases or chemicals had been disconnected or shut down.
He said QFES was working with Callide power station staff to get teams in breathing apparatus into the station to establish if there was still a fire, or if it had been extinguished.
A Queensland Ambulance Service (QAS) spokeswoman said no patients were being treated.
The Callide coal-fired station supplies baseload electricity to the national grid from two sites.(ABC News: Hayden Cooper
)Queensland Energy Minister Mick de Brenni told state parliament while 400,000 customers had initially lost power, 300,000 homes had already had power restored and further restorations were ongoing.
CS Energy, the operators of the Callide station, have tweeted it had "immediately acted following an incident" at the station and there were no reported injuries.
"At approximately 1:45pm today, a fire occurred in one of the turbine halls at the power station," the statement said.
"As a result, the three units that were generating at the time went offline.