The fire started in the roof of The George in Rye hotel in Rye High Street just after 4.30am.
At its height there were eight fire engines and 40 firefighters at the scene, East Sussex Fire and Rescue Service (ESFRS) said.
The incident has now been scaled down to six fire engines, a spokesman said, and crews are cutting away, damping down and clearing up.
A spokesman for ESFRS confirmed the cause of the 'complex' fire was not known at this stage.
Incident Commander Dan Channon said: "This was a challenging incident due to the complex nature of this old building in a confined part of the town.
"Crews had to work extremely hard in arduous conditions, using breathing apparatus, to bring the fire under control and prevent it from spreading to other properties."
Residents are being advised to avoid the area and the high street is closed to traffic.
A spokesman for the hotel confirmed everyone had been evacuated and was safe. They added that there was 'a lot of damage'.
The building dates from 1575. It has an original Georgian ballroom used for weddings and banquets.