Fire officials say it was fully engulfed in flames by the time they arrived at the scene.
City officials revised the number of fatalities on Thursday morning. The victims have not been identified.
The single-engine, four-seat plane, which took off from Smyrna, Tennessee, crashed near the intersection of 7th Avenue and Clark Road, which is about two miles south of the Gary airport.
Fire officials say it was fully engulfed in flames by the time they arrived at the scene. Witnesses say the plane appeared to be having engine problems and simply dropped from the sky, exploding in flames in a wooded area on Gary's west side.
Officials from the FAA and the NTSB are investigating.