Television images showed the wreckage of SpaceShipTwo, a test vehicle that flies to the edge of space, amid brush east of Mojave, a few hours' drive northeast of Los Angeles yesterday.
The incident is second disaster involving a US spacecraft this week, after an unmanned Orbital Science rocket carrying supplies to the International Space Station exploded after launch on Tuesday.
It is also a huge blow to British tycoon Richard Branson's long-held dream of offering the first passenger space flights, which have been snapped up by celebrities including Leonardo DiCaprio.
"Thoughts with all @virgingalactic ... I'm flying to Mojave immediately to be with the team," he wrote on Twitter. It was not clear where the globe-trotting tycoon was at the time of the crash.
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"During the test, the vehicle suffered a serious anomaly resulting in the loss of SpaceShipTwo. Our first concern is the status of the pilots," the firm said in a tweet.
Virgin Galactic said the fate of the pilots was unknown but the California Highway Patrol confirmed reports that one pilot had died another was serious injured, and taken to hospital.
The spaceship had been carried aloft on a bigger aircraft known as WhiteKnightTwo and then released for a test of its rocket engine above the Mojave desert, the latest in a series of tests.
"SpaceShipTwo has been released by WhiteKnightTwo, and is now flying freely," the firm wrote in a blow-by-blow account of the flight, adding: "Ignition! SpaceShipTwo is flying under rocket power again."
The next tweet announced the "anomaly" followed by a series confirming the crash. The company added that WhiteKnightTwo had landed safely after the accident.
More than 500 people have already reserved seats - and paid a deposit on the USD 250,000 ticket price - for a minutes-long suborbital flight on SpaceShipTwo, which can carry six passengers.