The reindeer took flight after a fierce blaze broke out in the Christmas market on Sunday evening, destroying six of the 40 stalls.
Members of the fire service, who spent three hours putting out the fire, spotted the animal escaping through a gate but were unable to stop it, regional newspaper Il Secolo XIX reported.
The reindeer, a female, is one of two which were at 'Santa's Village' in Monticello d'Alba, a small village in the Cuneo province of Piedmont.
The search continues and has now been extended to the woods and hills of the surrounding area. There have not yet been any sightings, and the reindeer's owners have expressed fear for their animal.
"We are very worried and with every hour that passes, the hope of finding her gets thinner and thinner," La Stampa quoted the owners as saying. "This is a domesticated animal, not able to survive in the wild."
The animal has lived in the Monteu Roero Animal Park for several years, and the owners explained she might not be able to feed in the wild, as she is used to animal feed delivered from Finland.
The owners added: "There are many dangers; that her antlers get caught, that she gets hit by a car or mistaken for a dear by a hunter. We are scared that her heart might stop out of fear, as sometimes happens with these animals. We hope that she gets close to a residential area and someone lets us know.”