Dozens of inmates were placed into lockdown at South Coast Correctional Centre after a fire was lit in a cell on Wednesday morning.
Guards used tear gas on about 60 inmates in the maximum-security section during the incident, which began at about 9.30am and was reported as a riot.
A Corrective Services NSW spokeswoman said a fire was started at the South Nowra prison by a maximum security inmate who refused to leave his cell.
Gas was used "to remove the inmate safely". About the same time, two other maximum-security inmates climbed onto an awning of an internal building.
"[They] came back down shortly after without instruction," the spokeswoman said.
"Immediate Action Team officers were forced to deploy gas in the yards of two pods containing about 60 inmates in order to safely return all inmates to their cells.
"All four maximum-security pods were then placed in lock-down with inmates secured in their cells about 11am."
Crews from the Rural Fire Service, Fire and Rescue NSW, Police Rescue and NSW Ambulance converged on the prison, and a media exclusion zone was set up at the jail perimeter.
Brad Collins from the Rural Fire Service said a "small fire" had been lit in one of the cells, fuelled by paper and other loose material.
"Obviously being such a high-security area, fire crews weren't actually given access to get into the area. The fire was extinguished by staff members," Mr Collins said.
"I understand that, following on from that, a number of smaller fires were lit in additional cells. Once that had occurred, the prison was then placed in lockdown."
No staff were injured during the incident, but one inmate is being assessed for smoke inhalation.
Corrective Services said it is investigating the incident, with the inmates involved possibly facing charges.
Peter Severin, the NSW Corrective Services Commissioner, praised the response of his officers to the situation.
"Corrective Services officers face a difficult job each day in managing some of the most dangerous people," Mr Severin said.
"The Nowra officers' capable and swift response to this incident meant the safety and security of the centre was maintained – they did a terrific job."