Fire Chief Dennis L. Rubin said the blaze destroyed the southern half of the city-owned building, which was empty at the time. There were no injuries.
"This is the worst thing to happen on Capitol Hill since I moved here in 1981," said Patti Cinelli, who lives five blocks away and frequented the market's fresh produce and meat stands and weekend flea market.
Rubin said the fire appeared to have started in a trash bin behind the building. It took 160 firefighters two hours to put out the blaze.
"It looked like the flames of hell," said Kyle Burk, 31, who lives two blocks from the market.
Burk worried what the loss of the market would do for surrounding shops like Capitol Hill Books, where he works on weekends and which thrives on the business the market brings to the neighborhood.
"Everyone knows everyone, it's kind of a meeting place," said Charles Glasgow, whose family has owned the Southern Maryland Seafood Company in the market for 70 years.
Mayor Adrian M. Fenty promised to rebuild the market.
Hours later, firefighters raced to a blaze at the Georgetown branch of the D.C. Public Library. The two-story brick building, which contains archives of documents about the historic neighborhood, was being renovated.
Fire department spokesman Alan Etter said the building's entire roof caught fire and parts of the structure were in danger of collapsing. No injuries were reported.