The Nano, hailed in 2008 as a car that would revolutionise transport in India, has suffered disappointing sales due to safety concerns, production glitches and slowing economic growth.
"A Nano car caught fire on Sunday in New Delhi. We have rushed a team of engineers to investigate the accident. The probe is a time-consuming process," Tata Motors spokesman Debasis Ray told AFP.
The company would be in touch with the owner of the car, he said.
The Times of India reported that two brothers had managed to escape after the car burst into flames.
Last year, the firm was forced to offer free safety upgrades after several Nanos caught fire in various incidents, but it has always maintained that the car has no safety problems.
The cheapest no-frills Nano model costs about $2,500.
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