The Metropolitan Fire Brigade arrived at the Flemington Street campus just after 2am to find the single-storey brick building ablaze.
Parts of the building collapsed early in the fire and there are suggestions it may need to be demolished.
Twenty-five MFB officers worked for 30 minutes to bring the fire under control, fighting to protect the nearby Children's Centre which was being threatened by the blaze.
Smoke produced by the fire prompted a community advice warning to be issued to the surrounding area.
The MFB reports no injuries were caused by the blaze.
The mental health facility provides both in and outpatient care.
The fire comes at a time when services for acute mental illnesses are under severe strain. The Andrews government has announced a royal commission into mental health.
More to come
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