A passenger on the train described seeing two fireballs after the train hit an object on the tracks.
The blaze has caused disruption across train services in Wales and the West Midlands.
Emergency servies services attended the blaze near the Craven Arms railway station at around 10.30pm, after last night’s 8.43pm Crewe to Cardiff Central train caught fire.
Pictures from the scene show fire underneath the carriages after the collision.
British Transport Police have reported they believed the incident occurred after the train hit a large object, causing the train to derail.
The line remains closed today (May 23), causing disruption for trains between Shrewsbury and Hereford.
This services have been replaced with buses, and impacts a number of services from Cardiff, Carmarthen, Llanelli, Maesteg and Holyhead.
The A49 in Shropshire was also closed in both directions between Hereford and Shrewsbury.
Transport for Wales has urged passengers to plan ahead, warning that the disruption is likely to continue for the rest of the day.
One passenger told WalesOnline she had to wait over four hours for a replacement bus. She still hadn’t made it back to Cardiff by 7am this morning.
She said: “I was in the front carriage and the lights went out and we derailed and two fireballs were on both sides of the window.
“It then caught fire from underneath and when we stopped, smoke started to come in and we got off.
“We were incredibly lucky. The conductor was brilliant but the incident happened around 11pm but we didn’t get a bus until 3:30am.
“No food, no toilet and no accommodation while we waited outside.”
A spokesperson for Transport for Wales said: “The 20:43 Crewe to Cardiff Central service was terminated after making contact with an object near Craven Arms.
“All 49 passengers on board were safely evacuated and replacement road transport was arranged.
“Disruption to services is expected to continue into Monday afternoon and passengers are advised to check the latest travel information before starting their journey.
“We apologise for any inconvenience this may cause.”
British Transport Police have confirmed that an enquiry into the cause of the fire is ongoing.
A spokesman said: “At just after 10.30pm yesterday evening (22 May), officers were called to a report of a fire on board a passenger train near Craven Arms station in Shropshire, along with emergency service colleagues.
“Approximately 60 passengers were safely evacuated from the train and the fire extinguished.
“It is currently believed that the fire happened as a result of the train hitting a large object on the track. Enquiries into the incident are ongoing.”