Firefighters from Cromwell, Clyde, and Alexandra were called to the blaze, which was believed to have started in or around a deep-fryer in the kitchen about 1pm.
Publican Dave Gillespie said he and a chef were working at the time, and about 12 people were in the bar area having lunch.
No-one was injured.
Mr Gillespie said the smoke damage would likely be "horrific".
He would not know the full extent of the damage until fire safety and insurance assessors examined the building in the next few days.
Because the fire was in the roof, it took a while for firefighters to contain the blaze and gain access.
"We've had to pull off parts of the roof," Mr Shaw said.
Mr Gillespie did not know whether the building would have to be demolished and rebuilt, although the hotel was fully insured.
"I've never really experienced anything like this, so I don't know whether it will still be structurally sound," he said.
Mr Gillespie has been publican of Bannockburn's only restaurant and bar for the past three years.
The Bannockburn Hotel was first built on site by J, Richards in 1862, when it was timber-framed with corrugated iron cladding.
It has had major redevelopments in 1935 - when the timber frame was finished with stucco - and in 1994.
