Horsham Fire Brigade captain John St Clair said the fire had engulfed the kitchen area and flames were coming out of the hotel roof when firefighters arrived in the early hours of Tuesday morning.
Firefighters searched the hotel and rescued an occupant and his dog from the building. No one was seriously injured.
“One man was treated by paramedics for smoke inhalation at the scene,” Mr St Clair said.
Crews stopped the spread of the fire inside the building and brought it under control by 1.06am, saving the main structure, including a two-storey front section, from being engulfed in the blaze.
Because the fire had made its way into the roof of the hotel, firefighting efforts included a specialist truck travelling from Ballarat to help control the blaze.
Several Country Fire Authority brigade units were involved and police blocked Dimboola Road, part of the Western Highway, during firefighting efforts.
A CFA and police investigation determined the fire started from the clothes dryer.