The Scottish Fire and Rescue Service (SFRS) crews were called to the listed Taynuilt Inn, in Taynuilt, just after 05:00.
Three appliances and a high-reach appliance are in attendance. The fire service said there were no reports of any casualties.
Police Scotland warned that the nearby A85 would be shut for some time due to an “extensive fire”.
The force said it was assisting with traffic management around the scene.
The village hall was opened in case emergency accommodation was needed for people whose homes might have been affected by the blaze.
Davie Sloss, convener of Taynuilt Community Council, told BBC Radio Scotland it was reassuring that no-one had been hurt in the fire.
But he added: “The hotel plays a really important role in both the social and economic life of the village.
“We had been looking forward to the hotel playing an even more significant part in village life as we come out of Covid, so it is a real concern what happens next.”
The inn is a category B listed building.