Witnesses also reported a strong smell of ash and sulphur. A dozen small earthquakes were recorded before the eruption began.
The officials have issued a red alert - the maximum warning level for the area.
Evacuation orders were issued for some 3,500 people, the local authorities said.
They added that the residents would be relocated in temporary shelters in safe areas.
So far there have been no reports of any injuries.
However, ash clouds have drifted to neighbouring Argentina where officials have ordered residents to stay indoors.
A regional airport in the Argentine city of Bariloche has been closed due to the volcanic ash.
Eyewitness Juli Kessler told the BBC she saw "big black clouds hanging over the Andes" and ash dust lying on the road.
It is the first time since 1960 that the volcanic chain has erupted.
The BBC's Gideon Long in Santiago says Chile is one of the most volcanic countries in the world.
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