Two other people were injured in the blast which levelled a building at the Quin Explosives factory outside the town of Gladstone, 200 kilometers north of Adelaide, police told national broadcaster ABC.
One person was still missing and feared dead at the site, a complex of five buildings where 15 to 20 peopple normally work on any given day. The cause of the explosion was not immediately known.
South Australia state Premier Mike Rann visited the site shortly after the explosion. It levelled almost everything within a 100-meter radius of the factory and was heard up to 70 kilometers away.
"This site has been a munitions and explosives factory for decades, manufacturing ordnance for the mining industry and the defence industry," Mr Rann said.
A resident said the blast was so powerful it shook her house 10 kilometers away.
"I was sitting down at the time and there was just one hell of an explosion and the house shook," Shirley Hooper said on ABC radio. "There's been explosions before but nothing like this one."
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.