Fire crews were called to Wharf Mews at around 1.15pm, with more than 30 firefighters on site.
Five fire engines, a 4x4 brigade response vehicle and a hydraulic aerial platform responded, with the firefighters from a number of Black Country Stations.
Three engines remain at the scene as damping down continues, with a main jet and two hose reels, West Midlands Fire tweeted in the last hour
No casualties were reported although the service confirmed the blaze caused damage to the roof space of the factory and the house.
Kerrie and Craig Jones, residents on the road, said: "You could see the flames coming from over the unit, they were quite high.
"I'm surprised the neighbouring houses did not catch fire as well, or at least buckle the roofing.
"We live right next door so we got a pretty good view, but it was a bit worrying how big the fire was honestly."
Photos from the scene show smoke coming out from the buildings.
A main jet and hose reel have been used as crews work to contain the fire spread.
Terry Alliband, 74, from Dudley, said: "It looked quite bad, looked like a caravan had caught fire - I don't know if it was an electrical fault or something.
"They were here quite fast, you could still see the smoke as it was rising pretty high, easily above the roof of the industrial unit I'd say."
More to follow.