The Nomad P837 light aircraft was on a routine patrol over the province of East Kalimantan when it lost contact with air traffic control at around 0100 p.m. local time (0600 GMT), navy spokesman Rear Adm. Iskandar Sitompul said.
It was flying between regional airports on the Indonesian half of Borneo island, which is shared with the country's northern neighbor, Malaysia, he said.
The Indonesian military has long complained that its fleet of aircraft are outdated and poorly maintained due to underfunding and a recently lifted U.S. ban on weapons sales.
A series of military plane crashes has killed dozens this year in Indonesia.
Indonesia is in the process of upgrading aviation safety regulations after commercial airline crashes in recent years killed more than 120 people, prompting a ban of Indonesian flights in EU airspace.