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The accident occurred on a turning near the ITBP camp when the driver lost control of the vehicle, plunging the bus into a 70-metre-deep gorge, Mussoorie police station SHO D S Kohli said.
There were 40 passengers — 16 women, 19 men and five children — in the bus at the time of the accident, he said.
A mother-daughter duo from Mussoorie died in the accident while 38 others were injured.
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Rash driving apparently led to the accident as the driver could not control the vehicle while negotiating the turn, he said.
Chief Minister Pushkar Singh Dhami expressed grief at the loss of lives in the accident and asked officials to make all arrangements for the treatment of the injured.