More than 25 firefighters worked to tackle the flames that tore through a shed with boats and cars inside, and spread to two others.

Fire and Rescue NSW (FRNSW) crews were faced with a "fully involved" shed fire when they arrived in Parker Street, with the added dangers of gas cylinders and mechanical equipment inside.

Buildings downwind of the fire were evacuated by police, who said the fire may have been sparked while welding was being done around 10.30am.

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"We understand that the owner of the premises had been working in the back shed and doing some maintenance on some equipment," Riverina Police District's Inspector Frank Brown said.

"At this early stage we believe he possibly was welding in his back shed and possibly has caused ignition of the fire.

"Police are not treating the fire at this early point in time as suspicious."

Superintendent Scott Dodson from FRNSW confirmed the fire was "still expanding" after some time and burning in three sheds, including a large one shed "filled with boats and cars", he said.

Hot spots in the shed were still being extinguished almost three hours later.

Seven fire trucks and 25 to 30 firefighters from FRNSW's Cootamundra and Young brigades and the RFS responded to the scene, with HAZMAT crews from Wagga's Turvey Park fire station also in attendance.

Four ambulance crews responded to the scene, which they initially called in after driving past and noticing the flames.

"A NSW Ambulance crew spotted the fire while driving through town and alerted other emergency services," Inspector Stephen Pollard from NSW Ambulance said.

"Local residents attempted to put out the flames before paramedics and Fire Rescue NSW crews arrived on scene."

"It appears the fire spread from one backyard shed to surrounding yards and caused substantial damage."

Two people - an elderly woman and a 90-year-old man - were being treated at the location for smoke inhalation, he said, before being taken to Cootamundra Hospital in a stable condition.

A number of other patients were assessed and did not require hospitalisation.

"Firefighters arrived on scene to find large volumes of black smoke issuing from the property, and are working with NSW Police to evacuate residents from surrounding properties," FRNSW said.

"Numerous crews from FRNSW and the Rural Fire Service are working to extinguish the fire which is believed to have started in one shed and spread to another shed at the back of the property."

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