A senior local official told Reuters that 42 people had been confirmed dead, adding that rescue efforts had been suspended until dawn on Friday.
Another official said earlier on Thursday that the vessel was overloaded with more than 400 people on board.
The MV Nyerere ferry overturned near the shore between the islands of Ukora and Bugolora.
Locals joined with emergency teams in rescue efforts on Thursday afternoon.
The Tanzanian government has confirmed the ferry capsized but exact figures for those on board are yet to be confirmed.