Oxfordshire Fire and Rescue Service crews were faced with a leisure boat engulfed in flames on the River Thames at 15:30 BST on Saturday.
Crews described how "thick acrid smoke" spiralled up into the city's skyline and a gas cylinder explosion was narrowly avoided.
Thames Valley Police is treating the incident as suspicious.
A fire spokesman said firefighters on the scene were able to "avert the hull from sinking and causing a navigation hazard on the waterway".
"As a further result of the swift response, the environmental impact of the incident was minimized," he added.
A police investigation is under way after a boat was deliberately set on fire in the centre of Oxford.