"It is the largest single firm order number for large jets in commercial aviation history," Airbus said in a statement.
The order has been broken down between 150 of the new A320neo versions, which have more fuel-efficient wing tips and engines, and 30 of the standard models. Airbus said it plans to start delivering the A320neos in 2016.
Rakesh Gangwal and Rahul Bhatia, co-founders of IndiGo, said: "This order for industry leading fuel efficient aircraft will allow IndiGo to continue to offer low fares."
They added that the increase in the A320s "was the natural choice to meet India's growing flying needs."
Fuel savings from the more efficient aircraft have been estimated at 15 per cent.
The A320 is Airbus' most popular single-aisle aircraft, with 4,500 already delivered to 310 airlines and another 1,300 on the order books. The plane maker unveiled the newer version only last month, and IndiGo's order makes it the model's premier customer.
The New Delhi based airline started operations in August 2006 and has a current fleet of 34 airbus A320 aircraft with an 18.6 per cent market share.
It has won government approval for services to Bangkok, Singapore, Dubai and Muscat from several cities in India and has now moved up the ladder to occupy joint second position along with Kingfisher among domestic carriers.