The 'Girl Gone Wild' star made the threat during a sound check at an open-air theatre in Santiago, having noticed a group of fans smoking cigarettes in the crowd.
She said: "There are people smoking right now... No smoking! If you're going to smoke cigarettes, I'm not doing a show."
The fans reportedly continued to smoke, prompting Madonna to add: "You don't care about me? I don't care about you. All right?
"Are we going to play that game? I'm not kidding. I can't sing if you smoke... Entiendes?"
She continued: "You're looking right at me and smoking cigarettes, like I'm a stupid f**king idiot."
The fans eventually put out their cigarettes and the concert went on as scheduled, TMZ reports.
Madonna's MDNA tour, which launched in May, has become the highest-grossing tour of 2012.