The incident began just before 2 a.m. PT when the Abbotsford Fire Rescue Service was called to the homeless camp on Gladys Avenue.
When they arrived they found the teepee engulfed in flames and propane tanks inside the teepee exploding.
Crews quickly brought the fire under control and one person was taken to hospital with non-life threatening injuries.
The cause of the fire remains under investigation but firefighters suspect it be linked to using propane to keep warm.
"I have absolutely no idea how it started, but we have a lot of propane bottles and barbeques located inside the teepee itself," said Assistant Chief Craig Bird.
"With lower temperatures that we have and winds, everybody that is homeless right now is trying to keep warm and they are using external sources of heat."
Because of the toxic smoke from a large amount of plastic that was burned in the fire, Abbotsford police remained at the scene keeping people out of the area until it can be cleaned up.
"We have the area roped off because there was a lot of plastics and hydrocarbons that were involved, so we are ensuring that nobody else is in the vicinity."
Firefighters says the ceremonial teepee served as a gathering area for the residents of the homeless encampment, but other campers were not inside at the time of the fire.