The incident took place around 3:15 p.m. on Fellowship Road.
Downingtown Superintendent Larry Mussoline says the bus driver had just left Lionsville Middle School when he smelled something unusual.
About a dozen students were onboard the bus at the time.
The driver quickly pulled over, turned off the engine, and evacuated everyone through the back of the bus.
Seconds later, the bus was engulfed in flames.
"There was nothing left of it. I can't even imagine anyone who could have survived had the bus driver hadn't thought so quickly," parent Helen Lieberman said.
"We think this is a courageous story of a heroic bus driver," Mussoline said.
Witness JB Belbin captured photos of the fiery scene.
"It caught fire really fast. The front row tires exploded; it was really loud and the whole thing just burnt down completely," Belbin said.
The school district outsources its bus transportation to the Wolfington Bus Company.
Action News contacted the company to speak with the heroic bus driver and to find out what happened to the bus, but our phone calls have not been returned.
Mussoline says the bus had been inspected.
"State police were out prior to the start of school year in July and inspected this particular bus," Mussoline said.
"It could have been a horribly tragic day, but instead it was sickening, but it's so happy for everyone that it worked out great," Lieberman said.