Elon Musk's company said Starship ultimately broke apart, calling it a "rapid unscheduled disassembly." The spacecraft's six engines appeared to shut down one by one during ascent, with contact lost just 8 1/2 minutes into the flight.
Footage of the incident, captured by a family vacationing in the Turks and Caicos, showed the wreckage leaving behind what one of the onlookers called a "rainbow" of debris.
"It looks like a shooting star," one of the observers can be heard saying.
"Oh my goodness, it doesn't look real," another exclaims as the burning debris flies overhead, leaving striking streaks of orange across the sky.
"This is not right. Something happened," another observer ultimately determines. "This exploded."
When asked if he thinks something went wrong with the launch, the same man says, "Oh, absolutely."
Musk later said a preliminary analysis suggests leaking fuel may have built up pressure in a cavity above the engine firewall. Fire suppression will be added to the area, with increased venting and double-checking for leaks, he said via X.
The spacecraft was supposed to soar across the Gulf of Mexico on a near loop around the world similar to previous test flights. SpaceX had packed it with 10 dummy satellites for practice at releasing them. It was the first flight of this new and upgraded spacecraft.
The last data received from the spacecraft indicated an altitude of 90 miles (146 kilometers) and a velocity of 13,245 mph (21,317 kph).
Before the loss, SpaceX, for the second time, used giant mechanical arms to catch the booster back at the pad minutes after liftoff from Texas. The descending booster hovered over the launch pad before being gripped by a pair of mechanical arms dubbed chopsticks.
SpaceX beefed up the catch tower after November's launch ended up damaging sensors on the robotic arms, forcing the team to forgo a capture attempt. That booster was steered into the gulf instead.
It was the seventh test flight for the world's biggest and most powerful rocket. NASA has reserved a pair of Starships to land astronauts on the moon later this decade. Musk's goal is Mars.
SpaceX noted ahead of the launch that a sonic boom may be heard by local residents and those in the nearby area during the flight.
"At the time of launch, the rocket's 33 Raptor engines may be audible while firing upon ignition and as the vehicle launches toward space," a press release from SpaceX stated. "About eight to ten minutes after liftoff, the Super Heavy booster may attempt, if strict conditions are met, a return to launch site and tower catch on the pad at Starbase."
A sonic boom is described as a brief, thunder-like noise that can be heard by a person on the ground when an aircraft flies faster than the speed of sound.
While it may sound scary to some, SpaceX advised that a sonic boom does not present health or safety risks.