Flames have been bouncing high into the air from the blaze in the last few minutes at Ballyboes Road, two miles north-east of the village.
Gardaí are assisting fire officers at the scene.
“It looks really bad,” an eye-witness told Donegal Daily.
“Flames from the fire can be seen for miles around. Everyone here is hoping and praying that no-one has been hurt.
“The guards are here too. Hopefully it will all be ok.”
It’s understood local fire officers are being assisted by fire crews from other areas in tackling the blaze which is just outside the village.