Firefighters from Bembridge and Ryde are currently tackling the blaze, which has engulfed the rear an old barge at Selwyn Marina.
Four breathing apparatus are being used alongside hose reels and main jets.
Emergency crews, including HM Coastguard, were called to the scene just before 20:30.
No other boats have been affected and no pollution has occurred.
Embankment Road remains open to traffic in both directions, although Southern Vectis are advising of delays to their Route 8 service.
Substantial fire damage has occurred to the wheel house area of the 90ft barge, which is used as bed & breakfast and self-catering accommodation.
The barge, built in 1922, has been up for sale locally valued at £175,000.
Bembridge Coastguard Rescue Team have returned to station after attending the coastal incident. Fire crews remain on scene (22:00).
The cause of the fire is currently unknown.
Featured photograph thanks to Dave Durry