Six fire engines are currently tackling the blaze involving a number of cars within a garage building, which broke out at around 11.10am.
Around 20 local residents have been evacuated and Spylaw Road is closed from its junction with Station Road.
A Scottish Fire and Rescue Service spokesperson said: “We are currently in attendance at a fire within a commercial premises on Spylaw Road, Kelso.
“Six appliances have been mobilised to the scene, where crews are tackling the fire involving a volume of cars within a garage building.
“Nearby properties are also being evacuated.”
A Police Scotland spokesman added: “We are assisting Scottish Fire and Rescue Service following reporters of a fire at around 11.10am at an address in Spylaw Road in Kelso.
“Traffic management is in operation and local diversions are in place.
“Around 20 local residents have been evacuated as a precaution.”
The industrial estate is home to a number of businesses including the town’s Castlegate nursery and out of school club, which, meanwhile, is assuring parents of children there that everyone at the nursery is safe.
A staff member wrote on its Facebook page: “The fire brigade are in attendance along the end of Spylaw Road. If you need to get into nursery, you will need to come in the opposite end at Border Concrete. They have opened their gates.
“We’re all fine and well, smoke is going in the opposite direction and fire brigade are happy for us to be here.
“We’re in the process of contacting all 1pm pick ups and arrivals, if you’re a later pick up we’ll contact you nearer the time if the road is still closed.
“Spylaw Road is still closed at the moment, so you need to go up Jedburgh Road and turn first left after ambulance station, down a step hill into Border Concrete and left onto Spylaw Road.”