The Blue Origin rocket blasted off from West Texas on Monday and was barely a minute into the flight when bright yellow flames shot out from around the single engine at the bottom.
The capsule's emergency launch abort system immediately kicked in, lifting the craft off the top. Several minutes later, the capsule parachuted onto the remote desert floor.
The rocket crashed back to Earth with no injuries or damage reported, the Federal Aviation Administration said in a statement.
Although this New Shepard rocket was dedicated to flying experiments, it was the same kind used for launching people on 10-minute rides to the edge of space.
The rocket is grounded pending the outcome of an investigation, said the FAA, which is in charge of public safety during commercial space launches and landings.
Blue Origin's launch commentary went silent when the capsule catapulted off the rocket Monday morning, eventually announcing: "It appears we've experienced an anomaly with today's flight. This wasn't planned."
"Booster failure on today's uncrewed flight. Escape system performed as designed," the Kent, Washington-based company tweeted close to an hour later.
No further details were provided by the company.
The mishap occurred as the rocket was traveling nearly 1,130 km/h at an altitude of about 8500 meters.
There was no video shown of the rocket — only the capsule — after the failure. It happened around the point the rocket is under the maximum amount of pressure, called max-q.
The rocket usually lands upright on the desert floor and then is recycled for future flights.
The webcast showed the capsule reaching a maximum altitude of more than 11,300 metres. Thirty-six experiments were on board, half sponsored by NASA. Most were put together by students.
It was the 23rd flight for the New Shepard program, named after the first American in space, Mercury astronaut Alan Shepard and the ninth flight for this particular rocket-capsule pair.
Blue Origin's most recent flight with paying customers was just last month; the ticket price hasn't been released. Bezos was on the first New Shepard crew last year. Altogether, Blue Origin has carried 31 people, including actor William Shatner.
The rocket should have launched nearly two weeks ago, but was grounded until Monday by bad weather.
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