Azharuddin Mohammed Ismail was asleep when a police officer woke him up and told him to leave his family's home, he said. Shortly after that, the shack and about 30 more were destroyed.
"A police officer took a bamboo stick to hit me, and I was frightened," said 10-year-old Azhar.
Authorities say his family will be given a new home elsewhere.
Eight Oscars and $326 million in box office receipts have so far done little to improve the lives of the film's two impoverished child stars, Azhar and Rubina Ali - who were plucked from the slum to star in the blockbuster.
They have been showered with gifts and brief bursts of fame, but their day-to-day lives are little changed.
Thursday morning, city workers flanked by policemen arrived as part of a slum demolition drive - common in India's chaotic cities, where officials struggle to keep crowding under control.
"They didn't give prior notice. We didn't even get a chance to take out our belongings," said Shameem Ismail, Azhar's mother, who has lived in the shanty town for more than 15 years. She has no legal right to the land.
"I don't know what I am going to do," she said, sitting on a bed she had dragged from the wreckage. Next to her was a plastic bag stuffed with belongings.
U.D. Mistry, an official with the city's Bombay Municipal Corporation, said the razing was part of a "pre-monsoon demolition drive.
He said only illegally built shanties - not homes that were legally owned - were bulldozed.
"They were removed. That is the principle," he said, adding he was not aware that the child star lived in that slum.
Mistry said residents who have lived in the shanty town for more than 15 years - including Azhar's family - would be resettled elsewhere in government-built housing. He gave no other details, and such official promises of resettlement often amount to nothing. When slum-dwellers are given housing, it is often in poor-quality buildings on the outskirts of cities and far from jobs.
"Slumdog" filmmakers say they've done their best to help the young stars. They set up a trust, called Jai Ho, after the hit song from the film, to ensure the children get proper homes, a good education and a nest egg when they finish high school. They also donated $747,500 to a charity to help slum kids in Mumbai.
Producer Christian Colson has described the trust as substantial, but won't tell anyone how much it contains - not even the parents - for fear of making the children vulnerable to exploitation.