Two hostages were later released as government and military forces responded to the revolt, according to Interior Minister Enrique Riera. He said two police officers were injured in the clashes.
Tacumbu houses nearly 4,000 inmates in a ramshackle, tin-roof building and, according to local security experts, gangs exert near-total influence over life inside.
Images from a Reuters photographer showed a shirtless inmate standing on top of a prison wall, throwing a rock at security personnel while protecting himself with a wooden board.
Police braced behind riot shields while the entrance to the prison was in flames, though authorities said later that firefighter had brought the blaze under control.
Meanwhile, prisoners' families gathered outside as they awaited news on their loved ones.
Interior Minister Riera said Paraguay would push for prison reform once the riot was quelled.