Some 30 people were rescued after a blaze tore through an amphibious tourist boat opposite the Houses of Parliament.
Flames ripped through the London Duck Tours vessel on a stretch of the River Thames close to Lambeth Bridge.
Many of those on board leapt into the water as flames took hold and thick black smoke billowed from the burning boat.
Passengers were later hauled to safety by rescue workers and crews on passing tour barges.
A woman and a child were taken to hospital with suspected smoke inhalation while f urther tourists were treated at the riverside.
A police source said the nature of the injuries "could have been a lot worse".
Some 28 tourists and two members of crew were on Sunday's stricken tour.
London Fire Brigade said the beleaguered craft was 33% damaged by the fire which broke out shortly before midday.
A Scotland Yard spokesman said: "Police were called at approximately 11.55am to reports of a fire on a Duck Tours boat on the River Thames.
"A number of people were reported to be in the water at the time. Several Metropolitan Police units attended including the Marine Policing Unit and the police helicopter.
"A number of people were recovered from the water. All 28 passengers and two crew members have been accounted for."
London Fire Brigade (LFB) said it pulled 30 people from the water and had the blaze under control by 12.10pm.
LFB group manager Neil Withers said: "A number of people jumped into the water but they were soon rescued, and fortunately at this stage it doesn't look like anyone's been seriously injured.
"People are clearly cold, wet and in shock but they were pulled from the water really quickly and that's testament to the work of our firefighters, other emergency rescue teams and others who rushed to the scene to help."
The casualties - all tourists - were warmed with cups of tea on the banks of the Thames.
The damaged tour vessel was pulled away from the scene by an LFB fire boat and the brigade has now launched an investigation into how the fire started.
The Port of London Authority is also expected to investigate the blaze.
London Duck Tours touts itself as the "antidote to the usual bus tours" and promises to offer families an "adventure on both road and river".
The yellow boats - known as ducks - are said to offer a "much more exciting way to see the capital's landmarks when compared to a London sightseeing bus or cruise".
The firm's website states: "No river cruise in London gives you the excitement of leaving the road and entering the Thames in such dramatic fashion and no river Thames boat cruise is as quirky as a London Duck Tour."
Tours last around an hour and a quarter, with around 30 minutes spent on the river. They are advertised as the "perfect activity for couples, families, friends or if you're looking for things to do in London for kids".
According to the company, each boat is modified to meet "stringent" safety regulations set by road and river authorities.
Each vehicle seats 30 passengers, has a public address system and is said to be fitted with full safety equipment.
Trips depart from Chicheley Street, near the London Eye, before the amphibious vehicles launch from a slipway by the MI6 headquarters.
According to London Duck Tours, the craft used for the "splashdown" were originally used for the D-Day landings in 1944.
The company offers a range of excursions including a James Bond Tour which is said to feature an " adventure-packed" journey and passengers are warned: "You'll be on the edge of your seat".
Meanwhile a "Pirate Adventure" is offered as a private trip. It is sold as a "truly fun and memorable way to mark that special occasion, and can be tailored for children aged seven years and up".
LFB said six fire engines battled this morning's blaze, alongside two fire rescue units and its fire boat.
Children as young as six were scooped from the water following the blaze.
LFB station manager Simon Tuhill said a third person was take to hospital following the rescue operation.
The man was said to have suffered a minor head injury.
Most of those on board were visitors to the UK, with many coming from Holland. Others are believed to have come from Sweden and Brazil.
"They were pretty pragmatic about it all," Mr Tuhill said.
"Obviously it was pretty scary for them. It isn't every day you sink in a boat in the Thames."
Londoner Elissa Wood was on the tour with her parents, who were visiting from Australia, when the fire broke out at the front of the vessel.
Speaking at the scene, she said she noticed smoke billowing from the boat as they travelled past Westminster.
"We saw the tour guide and the captain look at each other like 'this is a real problem' and then they encouraged us to put life jackets on and jump off," she said.
"It was really hot. The flames were really hot and it was confusing.
"We weren't sure what was happening so it was scary."