Agave Distillers, named after the Blue Agave plant used in Mexico to make the fiery liquor, is the first such operation outside the Latin American country.
Mexican diplomats used international trade agreements to ensure the South Africans did not actually call their drink tequila, but their "Agava" branded spirit has the same taste as leading brands, and bottles are flying off the shelves.
More importantly for managing director Roy McLachlan, distillers as far away as Australia, Europe and the US are buying up bulk consignments of concentrated liquor, which both undercut Mexican products and fill a hole in the market left by the Latin Americans.
That tequila-bottling bottleneck stems from a scarcity of agaves in Mexico.
Since similar species of the plant grow in South Africa, the Karoo distillers have pounced on the opportunity to fill the gap.
Agaves have been growing in the Karoo for a century and a half.
Legend has it that the plants were brought to Africa by Spanish and Portuguese sailors, who used the heavy hearts of the three-metre high plant as ballast in their ships.
Until the late 1990s, the agaves were used as feedstock for animals.
The Karoo entrepreneurs set out on their liquor-making plan only when they heard that many of Mexico's prized agave plantations had been wiped out by disease.
The plants take several years to grow, and that, says McLachlan, opened up a window of opportunity for a South African distillery.
"The only difference between what we make and what they make is that they process the Agave tequilana in Mexico and we process the Agave americana that grows here in the Karoo," he said, wandering through a jungle of copper pipes and towering stainless steel tanks at the distillery.
"Tequila can only be made in Mexico for the same reasons as port, sherry and champagne," he added. "Other than that...the components are the same". To carry any of these names, the drink in question must come from a specific region or country.
Trade agreements mean similar drinks made elsewhere cannot carry the name, even if they are made in exactly the same way.
McLachlan says the Karoo plant can produce 1 200 l/day, but that the company had raised capital to fund an expansion to 4 000 l/day by the third quarter of 2003.
Additional plans were afoot to get production up to 10 000 l daily, but even that would still only quench two per cent of the world's tequila demand.
After rebranding its labelled product, Agava, to sell on the South African market, Agave Distillers is now shifting between 12 000 and 15 000 cases of the spirit a month.
In addition, McLachlan said he hoped to be sending more than 60 000 l of concentrate a month to importers.
Local farmers win too, as they can now sell the otherwise useless hearts of the agave plants, not really cacti, but spiky dull-green succulents.
The 13-million rand project has not always been plain sailing.
The plant's first operators went into liquidation without producing a drop after health inspectors condemned a set of expensive agave cookers.
The distillers are confident their brand matches anything produced in Mexico, because they have tweaked their manufacturing process to end up with a taste modelled on drinks giant Diageo's market-leading Jose Cuervo brand.
The Mexicans are certainly not happy about the intrusion on their turf.
Efforts there to up agave production have led scientists to clone the plant, which is so valuable that police have been assigned to guard plantations from thieves.
Pride in the national drink has even taken Mexican tequila police to the US to complain about drinks that are not made with 100% of the home-grown liquor.
McLachlan says the company's business is running to plan, but that as time goes on, agave plantations laid out in Mexico years ago to make up for the anticipated shortfall are developing.
"We are four years down the line with the window of opportunity, so we are anticipating that we will have our foot in the door with a product that is well established by the time that the Mexicans come back to full production".
He has not yet been to Mexico to learn local manufacturers' distilling techniques.
"They don't allow us in," he said.
"They are very, very secretive, they don't want us to know at all". – Reuters.