A black plume of smoke could be seen billowing above the Leeson Polyurethanes factory in Juno Drive, for miles.
Locals were said to have vomited as a result of chemicals in the air, according to a report in The Sun.
Staff working at the town’s Rosalind Franklin Covid “mega-testing” lab next-door to Leeson Polyurethanes were also rushed to safety as a “precautionary measure”.
The major blaze devastated a large warehouse on the industrial estate, causing black polystyrene to rain down on the streets below.
The air ambulance is at the scene but there have been no injuries reported so far.
Anyone living within 70 metres of the site are being urged to keep windows and doors closed.
West Midlands Ambulance Service said it has two paramedic officers and a Hazardous Area Response Team at the scene.
Police said road closures are in place around the industrial unit.
There were reports of explosions so strong that it caused windows to rattle, while others said there were “strong chemical-like smells” and the sky “is dark with smoke and ash”.
Leamington Spa resident Stephen Morris, 48, told The Sun: “I've never seen anything like it in my life.
“We were in the garden earlier and heard what sounded like a bomb go off.
“It was like a loud pop. The next thing you know, there's a massive cloud of black smoke rising into the sky.
“It was like something from that film Independence Day. It's just lingering over the entire town now and I've never known so much police and fire activity here. They must have sent every appliance they have to it.
“I heard that people were getting sick as the smoke is toxic.”
One witness added: “Drove past and people have their heads in their hand and being sick. Air ambulance just arrived. Grim.”
Matt Western, the local MP, said that the fire and fumes may “involve chemicals” from the nearby plastics businesses.
He tweeted: “Massive fire on Tachbrook Industrial Estate.
“Extremely serious. Hearing it may involve chemicals from plastics business unit. Please close windows and stay indoors. Will update as I hear more.”
Public Health West Midlands have advised local residents to limit their time outdoors in the area as smoke and ash fill the air.