Firefighters are still trying to rescue people and extinguish the blaze at the centre run by the Caritas charity in Titisee-Neustadt, in the Black Forest.
The workshop employs about 120 disabled people, German media report.
So far seven people are reported injured. It is not yet clear what caused the blaze, which broke out at about 14:00 local time.
About 50 people are reckoned to have been in the building at the time. The centre is used for woodwork and metalwork.
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