Emergency services have been called to deal with a fire onboard the council ferry Daggri at Toft Pier.
The fire broke out at around 11.30am.
Fire services received the call requesting assistance.
Crews from Brae, Scalloway and Lerwick attended the scene. All passengers and crew are safe and there are no reports of any injuries.
The vessel had just left Toft ferry terminal when the fire was detected in the engine room and returned soon after to the berth.
The fire was extinguished by ferry crew and passengers disembarked at Toft and were taken to the nearby ferry waiting room. Vehicles disembarked from the vessel.
The council says the Yell Sound service is suspended.