Five fire engines and crews from Sandown, Shanklin, Ryde, Ventnor and Newport were alerted to the former Cygnet Hotel, on Carter Street, at its junction with Broadway.
Hampshire and Isle of Wight Fire and Rescue Service received reports of smoke issuing from the building at 10:30pm.
Crews arrived on scene shortly after and an aerial ladder platform and mobile incident command unit were used.
Residents were advised to keep their windows and doors closed due to smoke from the blaze.
Read more: Early morning basement fire at derelict Sandown hotel
Firefighters were able to contain the fire using main jets, hose reel jets and thermal imaging cameras.
The cause of the blaze is currently unknown.
It’s the second time this month firefighters have been called to the building.
On June 5, crews dealt with a small fire in the basement area.