The state-run Somali National Television said on Twitter security forces were dealing with a "terrorist incident" at the hotel, which al Qaeda-linked al Shabaab has taken responsibility for.
"There is a blast at Tawakal hotel and there is gunfire being heard," Mohamed Nur, a police captain, told Reuters from Kismayu.
"The security forces have besieged the scene," Farah Ali, a shopkeeper in Kismayu, told Reuters.
Kismayu is the commercial capital of Jubbaland, a region of southern Somalia still partly controlled by al Shabaab.
Al Shabaab was driven out of Kismayu in 2012.