Transport ministry spokesman JA Barata said there were 118 people on board the passenger ferry, including 19 children and 10 crew, when it left Kolaka in southeast Sulawesi this morning.
Later in the afternoon, the vessel sent out a distress signal, claiming the ship "had an accident as a result of large waves 4 to 5 metres high", Barata said in a statement.
There was no mention of casualties, but Indonesia's search and rescue agency and navy have been notified.
However, there was no immediate indication if teams had been dispatched to the scene to locate the ferry's passengers.
The Indonesian archipelago of more than 17,000 islands is heavily dependent on ferry services but the industry has a poor safety record and fatal accidents are common.
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