Footage shot at the scene shows flames tearing through the Diamond bus on Bloxwich Road, Walsall, and black plumes of smoke billowing into the air.
WATCH: Flames and smoke leap into sky
Schoolchildren from the nearby Leamore Primary School were evacuated onto the playground amid the drama at around 9.50am today.
Firefighters battled to control the blaze, which is thought may have been caused by an electrical fault.
Neighbours piled out into the street as the flames towered into the sky.
Susan Ryan, aged 37, lives nearby and witnessed the drama.
She said: "I was in the kitchen and saw a big puff of black smoke and I thought it was not a house or a garden on fire.
"I thought it was a lorry but when I got closer I saw it was a Diamond bus. It was all in flames."
Bob Baker, general manager at Diamond, said early indications suggested the demister on the bus 'could have been overloaded as a result of the weather conditions', potentially sparking the fire.
West Midlands Fire Service tweeted: Crews earlier attended a bus fire, which spread to a bus stop on Bloxwich Road.
"Fortunately due to the quick actions of the driver, all the passengers, including one elderly passenger with limited mobility, were evacuated safely. The cause was thought to be an electrical fault."