The coastguard was alerted at around 5.30am today to the passenger missing from the NorthLink ferry MV Hrossey in the Northern Isles.
A coastguard helicopter is currently involved in the search south-west of Fair Isle and three lifeboat crews are making their way to the scene
The coastguard would not confirm the age of the missing person, or their gender.
A spokeswoman for Shetland Coastguard said: "The Serco NorthLink ferry Hrossey has reported a person overboard to the south-west of Fair Isle.
"There is a search ongoing at the moment with the coastguard helicopter Rescue 102.
"Lerwick, Kirkwall and Stromness lifeboats are proceeding to the scene."
The missing person is believed to be a man who was a passenger on the ferry.
The ferry, which had more than 170 passengers on board, was sailing from Orkney to Shetland when the passenger is thought to have gone overboard.
The captain turned the ferry back to search for the missing person after being alerted to the incident at around 4am, NorthLink Ferries said.
In a statement, the firm said: "NorthLink Ferries can confirm that a search is under way in the North Sea after a report of a man overboard from the MV Hrossey between Orkney and Shetland.
"The captain of the MV Hrossey was notified about the incident at approximately 4am this morning and immediately turned the vessel back to begin the search.
"A coastguard helicopter is also involved in the search near Fair Isle.
"The MV Hrossey left Aberdeen at 5pm yesterday, bound for Orkney and Shetland.
"The vessel left Kirkwall in Orkney at 12.25am this morning, and was originally due in Lerwick at 7.30am.
"The MV Hrossey left Kirkwall with 172 passengers aboard, including 21 children.
"NorthLink Ferries is liaising with the relevant authorities regarding this incident, including the police."