It was prompted by the chance discovery of Roman coins in fields at Ipplepen, near Newton Abbot about four years ago.
Archaeologists, who have recently started examining the site, said it is the first of its kind in the county.
The excavation is being funded by the British Museum, Exeter University, the Portable Antiquities Scheme (PAS) and Devon County Council.
Sam Moorhead from the British Museum said he believed the Ipplepen site was "one of the most significant Roman discoveries in the country for many decades".
The site was discovered by local metal detector enthusiasts Jim Wills and Dennis Hewings, who contacted archaeologist Danielle Wootton, the Devon finds liaison officer for the PAS.
Ms Wootton said local people had been involved in the project, with about 40 volunteers helping at the excavation site.
"When we announced the find at a community meeting about three years ago, the hall was absolutely packed with local people and there was an electric atmosphere," she told BBC News.
"The bit we've excavated at the moment is prehistoric - it's Iron Age - but we have picked up traces of some Roman Romano-British field boundaries," she said.
"It's probably going to take us a very long time for us to fully understand the nature of the settlement and how long it was occupied for.
Ms Wootton said the important discovery should be credited to Mr Wills and Mr Hewings who had painstakingly recorded "every scrap of metal" they found.
"Jim and Dennis have been absolutely first class in recording what they've found and it's a result of them being responsible with their metal detecting that we've discovered this site," she said.
Mr Wills said the oldest coin he found dated back to 117BC,
"The very first Roman coin I found strangely enough - and this is out of more than 100 coins we found subsequently - is still the oldest of all the coins," he said.
"I've been detecting for many years, but it's always thrilling to dig up something you recognise is really important."
Part of the settlement excavation site will be open to the public on Sunday.
An Iron Age settlement unearthed in Devon has been described as one of the most important finds of its kind.