Ringing Bells said their Freedom 251 phone would cost just 251 rupees ($3.67; £2.56), and there was huge demand in the first hours of sale.
But sceptics have raised questions about the device and the company's price strategy.
India is the world's second-largest mobile market and has one billion mobile phone subscribers.
Freedom 251 is expected to target a market already dominated by low-cost handsets.
The phone has 8GB storage and cameras in the front and back, and its model resembles Apple's iPhone 4, including the home button and icons.
"This is our flagship model and we think it will bring a revolution in the industry," the AFP news agency quoted a spokeswoman as saying.
4.0" qHD IPS Display
1 GB RAM & 1.3GHz Quad core processor
3.2 MP Rear & 0.3 MP Front Camera
1450 mAh battery
The smartphone went on sale on Thursday morning but, just hours later, the company had to stop accepting orders after its website crashed due to huge demand: 600,000 hits per second, it said.
Ringing Bells said the phone would be produced locally, even though it still has no factory in India. The prototypes handed to journalists were, actually, of a Chinese-made phone with its brand name, Adcom, covered with white paint.
It has promised to deliver the first devices in four months.
SOURCE- BBC News, Ringingbells, Freedom 251