The Federal Aviation Administration said the fiery crash occurred at 7:40am (8.40am ET), near Lockhart, a town 50km south of Austin, the Texas capital.
The Texas Department of Public Safety confirmed the death toll.
Emergency responders said the basket, which carries the passengers and crew, caught fire. Aerial television footage of the aftermath showed remnants of the red, white, and blue balloon (which was adorned with a large, yellow smiley face wearing sunglasses) lying flattened.
The National Transportation Safety Board offered no details on what may have caused the accident, which occurred on a clear day. But a spokesman at the scene, Erik Grosof, said teams from that agency and the Federal Bureau of Investigation were being dispatched. FBI assistance is routine in major accidents, Grosof said.
Margaret Wylie, a local resident, said she believed the balloon hit power transmission lines, which caused popping sounds, like a gun going off. “It went up like a big fireball,” she told reporters.
Grosof said the balloon was operated by Heart of Texas Hot Air Balloon Rides, a company that serves the Austin, Houston, and San Antonio areas.
The sunglass-wearing smiley face and stars-and-stripes design of the fallen craft matched the pattern of a balloon featured in pictures posted on the company’s Facebook page, which carried messages of condolences.
Skip Nichols, identified by the company as its chief pilot, was reported by Austin station KVUE-TV, citing close friends, to have been at the controls of the balloon when it crashed.
It was the deadliest balloon crash on record in the Western Hemisphere, said Jeff Chatterton, a spokesman for the Balloon Federation of North America.
“There are thousands of balloons that go up every year,” he said. “This is unspeakably tragic, but it is rather unique.”
More than 150 commercial hot-air balloon companies operate in North America, he said.
Lockhart, a town of 13,000 people, is near state parks, and known for a variety of barbecue restaurants.
The accident occurred three years after 19 people, mostly Asian and European tourists, were killed in a hot-air balloon crash in Luxor, Egypt. A year earlier, a hot-air balloon burst into flames and crashed in New Zealand, killing all 11 people on board.