A jumbo jet operated by the American Virgin Orbit company carried a rocket out of Newquay, Cornwall, to release it high over the Atlantic Ocean.
The rocket ignited and appeared to be ascending correctly. But word then came from the company that the rocket had suffered an "anomaly".
The satellites it was carrying could not be released and were lost.
Cosmic Girl, the carrier 747 jet, returned safely to base.The Virgin Orbit system is relatively new. It's only been in operation since 2020.
It suffered a failure on its maiden outing but this was followed up by four successful flights.
The early indication is that there was an issue in the Newtonfour upper-stage engine
Matt Archer, the launch programme director at the UK Space Agency, said the issue occurred in the upper segment of the rocket.
"The second-stage engine had a technical anomaly and didn't reach the required orbit," he explained.
"That's now part of an investigation by Virgin Orbit and a number of government departments," he told BBC News.
Mr Archer couldn't confirm whether the rocket fell back to Earth but said that if it did, it would have come down over unpopulated areas.
The satellites were insured so their manufacturers and operators will be compensated.
Melissa Thorpe: "We put so much into this, everybody has, so it is absolutely gutting"
Rockets have been sent to space from the UK before, but not to put satellites in orbit. Those earlier efforts were part of military exercises or for atmospheric research, and the vehicles involved came straight back down.
Internationally renowned for making satellites of all sizes, the country's space industry has always had to send its products to foreign spaceports to get them into orbit.
Adding a launch capability means the sector will in future be able to do everything from first design through to mission operations.
Tickets for the launch event were snapped up. There was great enthusiasm from the crowd
More than 2,000 spectators and VIPs had gathered at Cornwall Newquay Airport to watch the 747 leave. They drifted away as news filtered through that something had gone wrong.
Monday night's failure is a blow to all those involved: Virgin Orbit, the satellite owners and Spaceport Cornwall which organised the flight.
"It's been really emotional," said Melissa Thorpe, who heads the spaceport.
"We put so much into this, everybody has, so it is absolutely gutting. But it's space and the cliché is it's hard. We know it's hard."
She added that the horizonal launch had gone to plan and she was confident they would be able to embark on another mission in the "near future".
Dan Hart, the CEO of Virgin Orbit, was reluctant to speak to the media, stating only that his company would bounce back.
He went to console his staff at the spaceport with UK science minister George Freeman.