Residents in the coffee-producing region said they had heard a powerful explosion before the Chaparrastique
volcano began spewing hot ash and smoke into the air.
No one has been hurt, say the authorities. Anyone living in a 3km (2 mile) radius will be evacuated.
Temporary shelters are being set up in the area.
Civil protection authorities say that some 5,000 people live in the area, in San Miguel province.
The eruption began at 10:30 local time (16:30 GMT). The Salvadoran government says it had been monitoring the situation since 13 December, when they detected increased activity inside the volcano.
Some 300 communities live around the volcano. There are more than 20 volcanoes in the small Central
American nation. At 2,129 metres (7,000 ft) above sea level, Chaparrastique
is the third highest volcano in the country.
It spewed lava in 1976 and caused a strong tremor in the area in 2010.