The Mi Drone can stay airborne for nearly half an hour and will be sold with a choice of stabilised cameras.
The move gives Xiaomi the chance to target a fast-growing market, at a time when it has failed to meet its own sales targets.
"The feature set between the Mi Drone and DJI's Phantom 3 is almost identical – they can both be made to return home and circle around a point of interest – but Xiaomi's product is so competitively priced you have to wonder if it can make much profit," Engadget's Chinese editor-in-chief Richard Lai told the BBC.
"So, the new drone will probably appeal to beginners. But experienced fliers want reliability and a brand with experience, and DJI has spent years refining its technology.
"It will take Xiaomi some time to prove itself as we still don't know how reliable its drones are, the quality of its video footage or how well its software will work."
Xiaomi plans to sell the Mi Drone with a 1080p high-definition camera with a 1km range for 2,499 yuan, and a version with a higher-resolution 4K camera and 2km range for 2,999 yuan.
By contrast, DJI – another Chinese firm – sells the Phantom 3 4K with a range of 1.2km for 4,999 yuan.
Xiaomi vice president Hugo Barra said that drones were "typically a product for rich people", but that his company wanted to sell them to a wider audience.
Xiaomi is pitching its four-propeller aircraft at consumers wanting to take aerial photos and videos.
Mr Barra said the built-in gimbal stabilised the Sony-made camera sensor at "up to 2,000 vibrations per second", which he said was enough to avoid blur. He added that it could stay airborne for up to 27 minutes using a 5,100 mAh battery.