The area has been cordoned off by police and investigators are inspecting the charred remains of the balloon.
Egypt's civil aviation minister has reportedly flown to Luxor to head the investigation into the crash.
Hot air balloon crashes have happened in Luxor before. Two British women were among 16 injured when their balloon came down after hitting a communications tower in April 2009.
Balloons were grounded for six months after that crash while safety measures were tightened up and pilots re-trained.
But, says the BBC's Aleem Maqbool in Cairo, since the 2011 revolution that toppled President Hosni Mubarak, the rule of law is not being respected in many aspects of Egyptian life, so it has been difficult for the tourism ministry to impose its authority on sites like this.
Luxor, like many other parts of Egypt, has seen a sharp downturn in visitor numbers during the two years since the uprising.