A large plume of smoke was seen rising over the Pico do Fogo volcano, starting on Sunday.
It is the first time the volcano on the island of Fogo has erupted since 1995.
The Cape Verde government said civil protection workers and military were being sent to Fogo to help. There have been no reports of casualties.
Officials said the signs were that the eruption was bigger than the last one, 19 years ago.
They have warned that the situation is likely to deteriorate.
Some of the displaced families will be housed in accommodation built for those evacuated in 1995.
Other will be offered temporary shelter in “ready-made” homes, the government said.
The area around the volcano is a popular hiking destination for tourists and is also used for agriculture, including wine-making.
The Cape Verde archipelago, which lies off the coast of West Africa, consists of 10 volcanic islands, eight of which are inhabited.
It is the first time Pico do Fogo has erupted since 1995.