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The nature of the crust in the Laxmi Basin, western margin of India, is an uncertain issue; more importantly, this has implications on paleogeographic reconstructions of the western Indian Ocean. We have analyzed three geophysical data sets and modeled gravity and magnetic anomalies for determining nature of the crust. Basement of the Laxmi Basin includes numerous highs, which make the basement uneven and shallower compared to the Western Basin. The Laxmi Basin is characterized by a broad gravity high and a narrower prominent gravity low within it, while within the basin the broad anomaly gradually increases toward north. The Panikkar Ridge is associated with the gravity low, which is comparable, at least in sign, to known negative gravity anomaly of the Laxmi Ridge. Intrusive structures mapped in the Laxmi Basin coincide with significant magnetic anomalies, which were earlier interpreted as seafloor‐spreading anomalies. Model studies reveal that the Laxmi Basin consists of ∼14 km thick stretched continental crust, in which magmatic bodies have been emplaced, whereas the Panikkar Ridge remains less altered stretched continental crust. The crust of the Laxmi Basin is mostly thinner than crust under the Laxmi Ridge and continental margin. In addition to the rift‐drift‐related stretching of the continental margin, the Laxmi Basin possibly has undergone extra stretching in E‐W direction during the pre‐Tertiary period. At ∼68 Ma Deccan volcanism on western India may have disrupted the initial conditions that were leading to onset of spreading in the basin. Subsequently the Réunion hot spot had emplaced the volcanic material within the stretched thinned continental crust. We interpret the Laxmi Basin as a failed rift, undergone stretching following intraplate kinematics prior to Deccan volcanism.