Mount Shindake erupted about 10 a.m. (0100 GMT) in spectacular fashion, spewing towering black-gray clouds into the sky.
No injuries had been reported, although the Japan Meteorological Agency reported that pyroclastic flows, dense currents of rock fragments and hot gases, from the volcano had reached the shore to the northwest.
The government was surveying the island by helicopter to assess damage.
Nobuaki Hayashi, a local village chief, said about 100 residents were gathered at a local evacuation facility.
"There was a really loud sound of an explosion, and then black smoke rose, darkening the sky," he told the national broadcaster NHK. "It smells of sulfur."
About 140 people live on Kuchinoerabu island in the Ryukyu archipelago, 50 miles (80 kilometers) southwest of the main southern island of Kyushu. Tourism and fishing are the main activities on the heavily forested, mountainous island, which is a national park.
The Japan Meterological Agency raised the volcano alert level to five, the highest on its scale. Shindake also erupted in August last year for the first time since 1980.
Kuchinoerabu island can be reached only by a once-a-day ferry from Yakushima island, 12 kilometers (about 7 miles) to the east, which has an airport and a population of more than 13,000 people.
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