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The blaze broke out in a grain elevator at the Graincorp silo at Werris Creek, which is holding about 10,000 tonnes of newly harvested wheat.
NSW Fire Brigade regional commander Michael Brown says crews have been able to isolate the fire.
"The crews are using fine water sprays because we want to disturb any of the dust to cool that area," he said.
"The importance of the fine water spray is that we're not disturbing any of the burning material that could force it to ignite other areas."
An 800-metre exclusion zone has been set up around the silo, and at least three homes have been evaucated.
The Department of Community Services is setting up an evacuation centre at the local bowling club to co-ordinate arrangements for those who have been forced from their homes.
Graincorp spokesman Chris Watson says silo fires are very volatile.
"You have dust, you can have a dust explosion," he said.
"It's in an elevator at the moment, not within the confines of the actual silo." - Source: ABC Australia