Georgina Cleasby, a local resident, told ITV News she saw the fire while she was cycling past the harbour on her way home.
“We stood and watched for around 10 minutes until the smoke began to affect our chests.”
“There was so much smoke it obscured the sun.”
“We heard a few minor explosions and could also see flames.”
Devon and Cornwall police have declared a major incident and are requesting the public avoid the area.
A police spokesman said: “Police were called at 12.10pm today [Saturday 28 May] to Princess Pier in Torquay following reports of a fire on a yacht moored in the marina.
“The boat is believed to be well alight and had broken from the mooring. It has now been secured by the Fire service near the pier.
“There have been no reported injuries at this time. Emergency services remain at the scene where the incident is ongoing.
“Due to levels of smoke and fumes we are asking residents in the area to keep their doors and windows shut at this time. Members of the public are also urged to avoid the area and beaches are being cleared by officers for public safety.
“A number of road closures have been put in place.”