Emergency service crews were searching for survivors after the midday blast at the Quin Investments factory complex outside the town of Gladstone, about 200 kilometres north of the state capital Adelaide, police said.
An ambulance spokeswoman said at least one person died in the blast.
She said two other people had been taken to the nearby Crystal
Brook hospital with minor injuries.
Details of the deceased and those injured were not yet available, the spokeswoman said.
She said a further two people remained unaccounted for.
A police spokesman said the blast had destroyed the factory.
The area around the factory had been declared a danger zone and access had been restricted.
Restrictions also applied to the flight area over the factory, a police said.
A spokeswoman for the factory said up to 20 people were working at the site at any one time but declined to say how many were there when the explosion happened.
The blast is believed to have occurred in one of about five buildings at the site.
Local resident Shirley Cooper said the factory had enjoyed a good safety record.
She said the explosion was so big it caused her house to shake.
"You could feel it," Ms Cooper told ABC radio. "It scared me. I ran outside."