The Nugent region in Tasmania's southeast was put on alert at 3.30pm AEDT on Monday for the dangerous blaze.
About 100 people live in the Nugent area, with the fire sending black smoke billowing into the air.
The emergency warning was issued for an area between Nugent Rd, Bezzants Rd and Crawlers Gully Rd.
It was downgraded to watch to act just before 7pm AEDT, with the Tasmania Fire Service advising people it was safe to return with caution.
"Although there is no immediate danger, residents need to monitor conditions and be alert for any changes," the alert read.
"Be ready if the situation escalates ... conditions are expected to improve."
However, authorities suggested the best option was for affected residents to stay with family or friends if possible.
"Embers, smoke, and ash may continue to fall in the area," the warning said.
"Smoke and ash are present and may make it difficult to see and breathe."
Crews were earlier on Monday working to control several bushfires across southern Tasmania in severe winds.
The threat has also eased from a separate bushfire to the southeast at Kellevie after it was burning at watch-and-act level.
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