Explosions and gunfire started ringing out before dawn as hundreds of troops moved in as part of a long-threatened invasion. There was no immediate word on casualties.
"We have now taken the Anjouan capital," Defense Chief of Staff Mohamed Dosara said by telephone from the main island of Grand Comore. "We have met a small amount of resistance."
Anjouan island's seaport was under the control of AU troops, according to an Associated Press reporter at the scene.
The Comoros, an archipelago of three main islands 250 miles off Africa's southeast coast with a population of about 750,000, has been caught up in a series of coups and political upheavals since gaining independence from France in 1975. The latest came when Col. Mohamed Bacar - a former president of the country - took over Anjouan island, drawing increasingly strident warnings from the central government.
Dosara said troops were now searching for Bacar.
Mohamed Kassim Adong, a resident of the coastal Anjouan town of Domoni, said he saw soldiers going house-to-house conducting searches.
At least 80 AU troops from Tanzania were among the landing force, officials said, but only a handful of government soldiers were spotted by reporters. The troops apparently arrived aboard four ships that cruised earlier in the day along the coast toward the island's airport and seaport.
The morning's explosions and gunfire drew hundreds of people into the streets of Anjouan, some of them chanting "Bacar is a dog" and "We have won!"
On Monday, the country's president said the army would invade Anjouan and helicopters dropped leaflets over the island urging residents to avoid the pending fighting.
"The National Army of Development (AND) informs all the residents that it will be in Anjouan in the days, or rather the hours coming," the leaflets read. "It is therefore advised that residents do not stray too far from their residences."
Each of the three main islands of Comoros has a regional president under the country's main leader, President Ahmed Abdallah Sambi, who is based in Moroni on Grand Comore.
"I have ordered the army to invade Anjouan to liberate the island from the hands of Mohamed Bacar," Sambi said in a news conference.
Bacar has said he is seeking Anjouan's independence.